Wall Street plunges amid recession panic, pairs losses on data
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The news: Wall Street's and Europe’s stock markets plunged on Monday, following a major sell-off in Asia, and extending Friday’s losses as investors feared the US economy might be deteriorating rapidly.
The numbers: The Dow Jones plunged as much as 3.11%, the S&P 500 4.2% and the Nasdaq Composite as much as 6%. At one point, the ‘Magnificent Seven’ stocks, which have driven market gains for the past 18 months dropped a combined 9%, according to Bloomberg data. Apple shares initially fell 10.7% after news that Berkshire Hathaway halved its stake but were down about 4% later. Nvidia stock dropped 15% following reports of a 3-month delay on its Blackwell AI chips, before recovering to be down 6% at midday. Microsoft and Alphabet were each down around 2%. European markets also fell, with the Pan-European Stoxx 600 index closing 2.17% lower, after an earlier 3.6% plunge.
Markets pared back their losses after US July service sector activity data exceeded expectations.
The CBOE Volatility Index, known as the ‘fear gauge’ soared to 54 before settling at 41, still it’s highest level since April 2020.
Two-year Treasury yields fell as much as 23 basis points to 3.65% in early morning trade before recovering to 3.85%, with the yield curve inverting for the first time in over two years, indicating an economic downturn and possibly a recession.
Commodities from copper and gold to crude oil plunged as traders rushed to place fresh bearish bets across industrial raw-material markets, Bloomberg reported.
The context: A worse-than-expected US jobs report on Friday, following a week of weak data, heightened recession fears, contributing to a global stock market rout that has also been driven by concerns a recent AI investment frenzy may not yield the huge quick profits anticipated.
Traders are pricing in an 88% chance of a 50 basis point rate cut by the US Fed in September, with some expecting an emergency quarter-point cut within a week, according to Bloomberg.
On Monday, however, US services sector data showed a rebound in July, with the Institute for Supply Management (ISM) index rising 2.6 points to 51.4, indicating expansion after a contraction in June that was the largest in four years.
What they said: “The poor July jobs report has led to market fears of impending recession and the need for an aggressive Federal Reserve response. Yet the latest ISM services report suggests the situation looks ok with the economy growing, adding jobs and with inflation above target,” said ING chief international economist for the US, James Knightley. “We don't expect an inter-meeting Fed rate cut unless systemic risk emerges.”
