Stocks in the U.S. have experienced a significant downturn for the third consecutive trading day, with the Dow Jones Industrial Average plummeting over 1,000 points amidst growing concerns of an economic slowdown. This decline has been fueled by a decrease in hiring and consumer spending, raising fears of a potential recession on the horizon.
On Monday, the S&P 500 slid 160 points, marking a 3% drop to 5,186, which is the index’s largest one-day decline in nearly two years, according to FactSet. The Nasdaq Composite also took a hit, sinking 3.4% as investors retreated from some of the Big Tech players that had previously been driving the U.S. market higher. Apple saw a 4.8% decrease, while Meta and Nvidia fell 2.5% and 6.4%, respectively. The Dow Jones Industrial Average tumbled 1,034 points, losing 2.6% of its value, although it had initially dropped over 1,200 points before recovering some of its losses later in the day.
Despite the recent market turmoil, U.S. stocks are still in positive territory for the year. The S&P 500 has gained 9.4% in 2024, even after factoring in the recent decline, while the Dow remains up by 2.6%.
The decline in stocks can be attributed to weak reports on manufacturing and construction, which raised concerns about the U.S. economy struggling under high interest rates. Additionally, disappointing hiring data from the previous month added to worries that the economy might be heading towards a recession despite the current high interest rates. The slow job growth reported in July, with only 114,000 new jobs added compared to the expected 175,000, has further fueled these concerns.
Tech stocks have been particularly impacted in recent weeks as investors have pulled back from artificial intelligence companies amid uncertainties about when this sector will start generating profits. The market remains skeptical about the pace of returns from AI investments, leading to a decline in tech stocks.
The market rout has not been limited to the U.S., as Asian and European markets have also experienced significant declines. Japan’s benchmark stock index plunged 12.4% on Monday, with the Nikkei suffering its worst two-day decline ever. Stocks in Korea and Taiwan also fell sharply, reflecting a broader trend of investor caution towards AI-focused companies.
With the disappointing economic data, there is growing concern that the Federal Reserve may have kept interest rates too high for too long, increasing the risk of a recession. Some investors are calling for the Fed to start cutting rates sooner rather than later to prevent an economic downturn.
Despite the current market volatility and concerns about a potential recession, many economists still believe that a recession is unlikely. While the risk of a sharper downturn is rising, domestic economic activity remains solid, with GDP growth exceeding expectations in the second quarter. Analysts point out that the July jobs report reflects just one month of data and may have been impacted by external factors such as Hurricane Beryl.
In conclusion, the recent stock market decline in the U.S. has been driven by a combination of factors, including weak economic data, concerns about high interest rates, and skepticism towards the profitability of AI companies. While the risk of a recession is increasing, many analysts believe that the economy is still on solid ground, and a recession remains unlikely. Investors will be closely watching for any signals from the Federal Reserve regarding potential rate cuts to mitigate the economic slowdown.