Wall Street’s main indexes dropped sharply on Monday due to concerns about a potential U.S. recession following weak economic data from the previous week, affecting markets globally. Stock markets in Asia and Europe also fell, and bond yields decreased as investors turned to safer investments, anticipating that the U.S. Federal Reserve might need to cut interest rates significantly to encourage economic growth.
Not much has been reported about African markets, which are less integrated into the global markets. No trading is taking place in Ghana as it is a holiday in the West African country.
The selloff was severe, particularly impacting the “Magnificent Seven” group of stocks, which had previously driven the indexes to record highs, with a potential loss of $1 trillion in market value. Apple shares fell 4.6% after Berkshire Hathaway reduced its stake, signaling caution from investor Warren Buffett about the economy or high stock market valuations. Nvidia dropped 5.6% due to reports of a delay in its new AI chips, and Microsoft and Alphabet each fell about 3%.
At 10:04 a.m., the Dow Jones Industrial Average had fallen 860 points (2.18%) to 38,870, the S&P 500 dropped 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, along with poor forecasts from major tech firms, pushed the Nasdaq 100 and Nasdaq Composite into correction territory last week. South Korea’s Kospi index fell nearly 9%, while shares in Asia outside Japan declined by about 4.2%.
The disappointing jobs data activated the “Sahm Rule,” a recession indicator. Traders now see an 88% chance 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 doubts the Fed would make such a cut, as it might suggest they were wrong about the economy’s health and could increase investor anxiety.
Chicago Fed President Austan Goolsbee played down recession fears but emphasized the need for the Fed to be aware of changes to avoid overly tight interest rates. The CBOE Volatility Index, known as Wall Street’s “fear gauge,” rose significantly, indicating increased market fear. U.S. Treasury yields hit their lowest in a year, and the gap between two- and 10-year Treasury notes turned positive for the first time since July 2022, often a sign of a looming downturn.
Offering some relief, data showed U.S. services sector activity improved from a four-year low in July, with increased orders and employment. All 11 major S&P 500 sectors were down, with information technology and consumer discretionary sectors suffering the most. Declining stocks outnumbered advancing ones by 13-to-1 on the NYSE and 12-to-1 on the Nasdaq.
The S&P 500 recorded 13 new 52-week highs and 23 new lows, while the Nasdaq Composite saw 6 new highs and 438 new lows. Meanwhile, shares of Pringles maker Kellanova surged 14.8% after a report that candy giant Mars was considering a buyout of the company.
Source: Reuters
