Global markets get rocked as US recession fears spark calls for emergency rate cuts
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Sea of red… Yesterday all three major US indexes closed at least 2.6% lower, with the Dow and S&P 500 posting their worst days since 2022. The tech-heavy Nasdaq 100 had its worst start to a month since 2008 as investors pulled out of high-flying mega-caps like Apple and Nvidia. And the Nasdaq Composite is in a “correction” (down 10% from recent highs). All the commotion drove the VIX — Wall Street’s “fear gauge” — to its highest level since 2020. Meantime, bitcoin briefly dipped under $50K, and the crypto market lost about $367B in value.
Tokyo rift: Japan’s Nikkei index plunged 12% for its worst day since 1987 as the country’s currency quickly appreciated. Last week, Japan raised its interest rates to 15-year highs, and investors unloaded popular “carry trades” of the Japanese yen.
Seeking shelter: Investors fled to US Treasury bonds as a safe haven from the fallout, driving the 10-year yield to its lowest level in over a year (yields fall as bond prices rise).
Bad news is bad again... For a while, investors took a “bad news = good news” approach to economic data because it made Fed interest rate cuts seem more likely. But now that a September cut is widely expected, bad news is starting to stoke recession jitters. Stocks plunged after Friday’s July jobs report, which was a major bummer (unemployment hit the highest level since 2021). With rates still at 20-year highs and recession fears roiling, traders are betting the Fed will make an “emergency cut” before its next meeting. It would be the first out-of-cycle rate cut since the onset of Covid in 2020.
Market tantrums are inevitable… Corrections are a part of investing, and they tend to happen around once every few years. After months of AI-fueled rallies and record highs, investors are rotating out of riskier assets like tech stocks as expectations come back to earth. Big Tech earnings have failed to meet lofty forecasts, and there’ve been hiccups with AI innovation. Some analysts say Wall Street may be overreacting. And despite the meltdown, the S&P 500 and Nasdaq are still up nearly 10% for the year.