On Monday, August 5, 2024, Wall Street experienced its most huge downturn in almost two years with the leading share indices including the S&P 500, Dow Jones Industrial Average and Nasdaq Composite, suffering huge losses. The sell-off was part of a global market retreat fueled by growing fears of a potential recession in the United States.
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S&P 500 was closed down 3%, its biggest daily drop since September 2022, at 5,186.33. Dow Jones Industrial Average fell 2.6%, closing at 38,704.06, shedding over 1,000 points.
Nasdaq Composite decreased by 3.4%, ending at 16,200.08. This sudden decline came just weeks after these indices had reached record highs driven by a market boom earlier in the year. Despite Monday’s downturn the S&P 500 remains up more than 9% since the beginning of the year.
CBOE Volatility Index (VIX) often referred to as Wall Street’s “fear gauge,” the VIX surged to levels not seen since the market crash triggered by the COVID-19 pandemic.
Nikkei 225, Japan’s primary index fell by a 12.4%, its worst day since the infamous Black Monday crash of 1987.
FTSE 100, the UK’s leading stock index suffered its steepest one-day decline in more than a year.
The panic was by an unexpectedly weak jobs report released the previous Friday. The United States unemployment rate for July increased to 4.3%, up from the expected 4.1%.
More than 70% of the unemployment increase was attributed to temporary layoffs, which might reverse and are not a reliable recession indicator.
The Federal Reserve’s decision to hold interest rates steady also fueled anxiety. Some investors criticized the Fed for not cutting rates.
The technology-heavy Nasdaq was particularly affected by a sell-off in major tech stocks. Apple saw a decline after Warren Buffett’s Berkshire Hathaway reduced its stake in the company.
Stocks related to artificial intelligence such as Nvidia, also struggled. The market has placed high expectations on AI as a transformative technology, but earnings reports from major tech companies have been disappointing leading to increased skepticism about AI’s immediate impact.
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The collective market value of leading tech companies including Alphabet, Amazon, Microsoft, Meta Platforms and Tesla was set to decline by about $800 billion on Monday.
Goldman Sachs economists led by Jan Hatzius, have increased the probability of a United States recession in the next year to 25% from 15%.
The United States jobs report revealed a rise in unemployment to 4.3%, the highest level since August 2023.
The firm expects job growth to recover in the coming months. Job openings still indicate solid demand, which supports the labor market.
The ISM manufacturing index fell to 46.8%. This decline is a concerning indicator of economic slowdown but not necessarily indicative of a full-blown recession.
The yield on the 10-year Treasury note dropped below 4% for the first time since February 2024.
Goldman Sachs anticipates three consecutive 25-basis-point cuts in September, November and December 2024.
JPMorgan Chase & Co. and Citigroup expect a half-point cut in September. The CME Group’s FedWatch tool shows an 86% likelihood of a half-point cut in September.
Powell indicated that the decision would depend on the totality of economic data and evolving risks. If the labor market continues to show signs of weakness, the Fed may opt for larger cuts.
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