Fears of a US recession have sent shockwaves through global markets, triggering a share market rout that has investors on edge across Asia, Europe, and North America. The severity of the plunge has raised concerns about whether this is the beginning of a historic share market crash, similar to the global financial crisis or 1987’s Black Monday, or simply an overdue pull-back after a period of strong returns.
The market meltdown was sparked by the US Federal Reserve’s hint that interest rates would soon be cut, initially seen as a positive stimulus for shares. However, as investors interpreted the impending rate cuts as a sign of economic weakness, the gains quickly evaporated. Economic data, including manufacturing, durable goods, and jobs and payroll data, raised questions about the health of the US economy, with the „Sahm Rule“ signaling a potential recession. This indicator, which has accurately predicted every recession since World War II, has economists and investors on high alert.
AMP chief economist Shane Oliver expressed concerns about recession fears, particularly in the US, while Sydney-based portfolio manager Nick Healy noted that the softer-than-expected US data triggered a strong market reaction. The rout that began in Asian markets on Monday spread to European and American markets, with Wall Street’s fear gauge, the CBOE Volatility Index, reaching levels not seen since the global financial crisis.
Despite the losses, the benchmark S&P 500 index and the tech-focused Nasdaq are still up more than 9% since the beginning of the year. However, shares, stock markets, and indices that had experienced significant gains were hit the hardest during the market meltdown. Chip maker Nvidia and bitcoin saw sharp declines, while Australia’s share market suffered its worst day since the pandemic, losing over $100 billion in value in a single trading session.
Japan’s Nikkei index experienced extreme pressure, plunging by 12% on Monday before rebounding early on Tuesday. Concerns about the Japanese economy and the effects of a strengthening yen, which unraveled the yen carry trade, contributed to the market turmoil. Safe haven assets like bonds provided some refuge from the chaos, challenging the optimistic sentiment that had prevailed in recent months.
As investors wait to see if the selling pressure will subside, the sharp falls serve as a warning of potential economic challenges ahead. The global recession concerns are tied to fears that cost-of-living pressures could depress spending and lead economies into reverse. Companies like Wayfair, which reported a significant decline in customer spending, are seen as indicators of a potential bear market. However, the upcoming US election and associated spending initiatives could provide a stimulus for shares, offering some hope for a recovery in the market.