Wall Street Suffers Steep Losses Amid Economic Slowdown Fears
Monday was marked by a dramatic global sell-off reminiscent of the 1987 crash, impacting markets worldwide and hitting Wall Street hard. Concerns over a slowing U.S. economy led to significant losses, with the S&P 500 dropping 3%, marking its worst day in nearly two years. The Dow Jones Industrial Average fell by 1,033 points, or 2.6%, and the Nasdaq composite decreased by 3.4%, as major tech companies like Apple and Nvidia continued their downward trend.
The global sell-off, which began last week, saw Japan’s Nikkei 225 plummet 12.4% on Monday, its worst day since Black Monday in 1987. This was the first opportunity for Tokyo traders to respond to Friday’s report that U.S. employers had significantly slowed hiring, exacerbating fears that the Federal Reserve’s prolonged high-interest rates might be stalling the economy too much in an effort to curb inflation.
Despite some professional investors suggesting technical factors might be exaggerating market movements, the declines were stark. South Korea’s Kospi index dropped 8.8%, and bitcoin fell below $54,000 from over $61,000 on Friday. Even gold, typically a safe haven during market turmoil, slipped about 1%.
Speculation grew that the Federal Reserve might need to cut interest rates in an emergency meeting before its scheduled decision on September 18. The two-year Treasury yield, closely linked to Fed expectations, briefly sank below 3.70% from 3.88% late Friday, though it later recovered to 3.89%.
The U.S. economy remains on a growth trajectory, with the stock market up healthily for the year, and a recession not guaranteed. The Fed has aimed to balance aggressive rate hikes to control inflation without stifling economic growth. Goldman Sachs economist David Mericle raised the recession probability to 25% from 15% after Friday’s jobs report but noted that the overall data still appears sound.
Some of Wall Street’s losses could be attributed to a correction in an overheated market, driven by enthusiasm around AI technology. Critics have warned that stock prices rose faster than corporate profits, making stocks appear overvalued. To realign valuations, either prices must drop, or profits must grow. Expectations for profit growth remain high, with S&P 500 profits projected to be the strongest since 2021.
The Bank of Japan’s recent interest rate increase also contributed to market volatility, prompting traders to adjust investments made with low-cost borrowed money. Treasury yields moderated losses on Monday after a report indicated stronger-than-expected growth in U.S. services, particularly in arts, entertainment, and recreation, as well as accommodations and food services.
Stocks most sensitive to economic health experienced sharp declines. The Russell 2000 index of smaller companies dropped 3.3%, negating recent gains. Big Tech stocks, particularly Apple and Nvidia, suffered as market optimism waned. Apple fell 4.8% after Berkshire Hathaway reduced its stake, while Nvidia dropped 6.4% due to delays in its new AI chip, slashing its yearly gain to nearly 103% from 170% in June. Alphabet also fell 4.4% following a legal ruling against Google’s search engine practices.
Overall, the S&P 500 fell 160.23 points to 5,186.33, the Dow dropped 1,033.99 points to 38,703.27, and the Nasdaq tumbled 576.08 points to 16,200.08.
Market concerns extend beyond corporate profits and interest rates, with geopolitical tensions like the Israel-Hamas conflict potentially impacting oil prices and adding to global uncertainties. Upcoming U.S. elections also pose risks, with market volatility potentially influencing electoral outcomes. The possibility of a recession could challenge Vice President Kamala Harris while prompting former President Donald Trump to shift his focus from inflation to economic revival strategies.
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