Wall Street’s major indexes plummeted on Monday as fears of a potential U.S. recession loomed after last week’s weak economic data, triggering global market declines. Stock markets in Asia and Europe also took a hit, and bond yields dropped as investors flocked to safer assets, expecting the U.S. Federal Reserve might need to cut interest rates substantially to stimulate economic growth.
African markets exhibited mixed results. Due to less integration with the global financial system, the continent’s markets were somewhat shielded from the global shockwaves. Trading was paused in Ghana on Monday for a national holiday. The FTSE/JSE Africa All Shares Index, representing the majority of the Johannesburg Stock Exchange’s market capitalization, fell by 1.19%. Meanwhile, Nigeria’s market rose by 0.17%, while Nairobi and Egypt experienced declines of 2.11% and 2.33%, respectively.
The selloff on Wall Street severely impacted the “Magnificent Seven” stocks, previously driving record highs, with a potential market value loss of $1 trillion. Apple shares dropped 4.6% after Berkshire Hathaway reduced its stake, signaling caution from Warren Buffett about the economy or high valuations. Nvidia fell 5.6% due to delays in its AI chip launch, while Microsoft and Alphabet each fell around 3%.
By 10:04 a.m., the Dow Jones Industrial Average had dropped 860 points (2.18%) to 38,870, the S&P 500 decreased 134 points (2.51%) to 5,213, and the Nasdaq Composite lost 521 points (3.10%) to 16,256. A weak jobs report and declining manufacturing activity, coupled with bleak forecasts from tech giants, had already pushed the Nasdaq 100 and Nasdaq Composite into correction territory last week. South Korea’s Kospi index plunged nearly 9%, while shares in Asia outside Japan fell by about 4.2%.
The poor jobs data triggered the “Sahm Rule,” a recession indicator. Traders now see an 88% probability of a 50 basis point rate cut by the U.S. central bank in September, up from 11% the previous week, according to CME’s FedWatch Tool. However, Sam Stovall from CFRA Research expressed skepticism about such a rate cut, suggesting it could signal Fed misjudgment of economic health and elevate investor anxiety.
Chicago Fed President Austan Goolsbee downplayed recession fears but stressed the importance of the Fed remaining vigilant about economic changes to prevent excessive tightening of interest rates. Despite the turmoil, U.S. services sector activity rebounded in July from a four-year low, with rising orders and employment offering some relief. All 11 major S&P 500 sectors were down, with information technology and consumer discretionary sectors hit hardest. Declining stocks outpaced advancing ones by 13-to-1 on the NYSE and 12-to-1 on the Nasdaq.
If global market instability continues, African markets might attract investors seeking alternatives, potentially benefiting from the market slump. Ghana, which has a significant number of non-resident investors, lost some players following its debt exchange program. As Ghana’s economy recovers, global market downturns could prompt the return of investors who exited two years ago.
