Stock markets from Asia to Europe took a hit, and bond yields slipped
MUMBAI: Wall Street’s main indexes slumped on Monday as fears of the United States tipping into recession, following weak economic data last week, rippled through global markets.
Stock markets from Asia to Europe took a hit, and bond yields slipped as investors flocked to safe-haven assets. This shift led to bets that the U.S. Federal Reserve would need to cut interest rates aggressively to spur growth.
The selloff was severe, with the so-called Magnificent Seven group of stocks—previously driving the indexes to record highs earlier this year—set to lose a combined $1 trillion in market value.
Apple fell 4.6% after Berkshire Hathaway halved its stake in the iPhone maker, indicating that billionaire investor Warren Buffett may be concerned about the broader U.S. economy or high stock market valuations.
Microsoft and Alphabet each fall about 3%
Nvidia slid 5.6 per cent following reports of a delay in the launch of its upcoming artificial intelligence chips due to design flaws. Microsoft and Alphabet each fell about 3 per cent.
As of 10:04 a.m., the Dow Jones Industrial Average fell 860.39 points, or 2.18 per cent, to 38,870.14. The S&P 500 lost 133.97 points, or 2.51 per cent, to 5,212.59, and the Nasdaq Composite dropped 520.61 points, or 3.10 per cent, to 16,255.55.
Weak jobs report and shrinking manufacturing activity in the world’s largest economy, along with dismal forecasts from major U.S. technology firms, pushed the Nasdaq 100 and the Nasdaq Composite into a correction last week. The disappointing jobs data also triggered the “Sahm Rule,” considered by many as a historically accurate recession indicator.
50 basis points Fed rate cut likely in September
Traders now see an 88 per cent probability that the U.S. central bank will cut benchmark rates by 50 basis points in September, up from an 11 per cent chance seen last week, according to CME’s FedWatch Tool.
“I don’t think the Fed would go 50 basis points because it would imply that the Fed was wrong and that a recession is imminent, which would increase investor tension rather than calm nerves,” said Sam Stovall, chief investment strategist at CFRA Research. Chicago Fed President Austan Goolsbee downplayed recession fears but emphasized that Fed officials need to be aware of changes in the environment to avoid being too restrictive with interest rates.
The CBOE Volatility Index, also known as Wall Street’s “fear gauge,” breached its long-term average level of 20 points last week and was currently at 40.63.
Treasury yields at year’s lowest
U.S. Treasury yields tumbled to their lowest in a year, and a closely watched gap between two- and 10-year Treasury notes turned positive for the first time since July 2022, usually indicating an impending downturn in the U.S. economy.
U.S. services sector activity rebounded from a four-year low in July amid a rise in orders and employment. All 11 major S&P 500 sectors were trading lower, with information technology and consumer discretionary the hardest hit.
Declining issues outnumbered advancers by a 13.06-to-1 ratio on the NYSE and by an 11.8-to-1 ratio on the Nasdaq.
The S&P 500 posted 13 new 52-week highs and 23 new lows, while the Nasdaq Composite recorded six new highs and 438 new lows.
Pringles maker Kellanova soared 14.8% after a Reuters report indicated that candy giant Mars was exploring a potential buyout of the company.
