Wall Street’s main indexes took a significant hit on Monday as concerns about the United States potentially entering a recession loomed large following weak economic data released last week. This downturn in the market had a ripple effect across global markets, with bourses from Asia to Europe experiencing losses and bond yields slipping as investors sought refuge in safe-haven assets. The prevailing sentiment among investors was that the U.S. Federal Reserve would need to implement aggressive interest rate cuts to stimulate economic growth.
The selloff was particularly harsh, with the so-called Magnificent Seven group of stocks, which had been driving the indexes to record highs earlier in the year, facing a combined loss of $1 trillion in market value. Notable companies like Apple, Nvidia, Microsoft, and Alphabet all saw significant declines in their stock prices, with Apple falling 4.6% after Berkshire Hathaway halved its stake in the company. This move by billionaire investor Warren Buffett was seen as a signal of growing caution about the broader U.S. economy and potentially inflated stock market valuations.
The market downturn was further exacerbated by reports of a delay in the launch of Nvidia’s upcoming artificial-intelligence chips due to design flaws, leading to a 5.6% drop in the company’s stock price. Microsoft and Alphabet also experienced declines of around 3% each. By mid-morning, the Dow Jones Industrial Average had fallen by 2.18%, the S&P 500 by 2.51%, and the Nasdaq Composite by 3.10%.
The weak jobs report and shrinking manufacturing activity in the U.S., coupled with disappointing forecasts from major technology firms, had pushed the Nasdaq 100 and the Nasdaq Composite into a correction territory the previous week. The underwhelming jobs data also triggered what is known as the „Sahm Rule,“ a recession indicator that many investors closely monitor.
In response to these developments, traders now see an 88% probability that the U.S. central bank will cut benchmark rates by 50 basis points in September, a significant increase from the 11% chance estimated the previous week. However, some experts, like Sam Stovall, chief investment strategist at CFRA Research, believe that such a drastic rate cut could potentially exacerbate investor anxiety rather than alleviate it.
Despite the prevailing concerns about a potential recession, Chicago Fed President Austan Goolsbee downplayed these fears, emphasizing the need for Fed officials to remain vigilant and adaptable in response to changing economic conditions. The CBOE Volatility index, often referred to as Wall Street’s „fear gauge,“ had surpassed its long-term average level of 20 points, reaching 40.63.
Amidst the market turmoil, there was a glimmer of hope as data indicated that U.S. services sector activity had rebounded from a four-year low in July, driven by an increase in orders and employment. However, all 11 major S&P 500 sectors were trading lower, with information technology and consumer discretionary sectors being hit the hardest.
In conclusion, the market downturn on Wall Street was a stark reminder of the fragility of the global economy and the interconnectedness of financial markets. As investors brace for potential further volatility and economic uncertainty, it remains to be seen how policymakers and market participants will navigate these challenging times.