Despite recent optimism in the markets, Monday brought a stark reversal as the Dow Jones Industrial Average experienced its worst day in nearly two years, tumbling 1,033.99 points amid mounting concerns over the US economy. The S&P 500 and Nasdaq Composite also saw significant declines, driven by disappointing economic data and fears that the Federal Reserve is lagging in its response to an impending recession. The global sell-off was worsened by dramatic losses in Japan’s stock market, echoing the turmoil of Wall Street’s Black Monday in 1987. This widespread market retreat highlights the vulnerability of investor sentiment to economic uncertainties and the fragility of recent gains in technology and AI stocks.

Key Takeaways:

  • Dow Plummets 1,000 Points: The Dow Jones Industrial Average experienced a significant decline, dropping 1,033.99 points, or 2.6%, to end at 38,703.27. This marks its worst day since September 2022, driven by fears over the health of the US economy and disappointing July jobs report. The sharp sell-off highlights investor concerns about a potential recession and the Federal Reserve’s response to economic conditions.
  • Nasdaq Composite Sees Major Decline: The Nasdaq Composite also faced substantial losses, plummeting 3.43% to close at 16,200.08. Tech stocks were among the hardest hit, with investors selling off shares in response to recession fears and declining confidence in the artificial intelligence sector. Notable declines included Nvidia, which tumbled 6.4%, and Apple, which fell 4.8%.
  • S&P 500 Posts Worst Day Since 2022: The S&P 500 slid 3% to finish at 5,186.33, registering its worst daily performance since September 2022. The broad market index was dragged down by significant losses in tech and consumer discretionary stocks, reflecting widespread investor anxiety about economic slowdown and the Federal Reserve’s interest rate policies.
  • European Markets Follow Suit: European stocks mirrored the global downturn, with the Stoxx 600 closing 2.17% lower. The FTSE 100 Index fell by 166.48 points, or 2.04%, to 8008.23, while the CAC 40 Index dropped 114 points, or 1.57%. Utilities and oil and gas sectors were particularly affected, each losing over 3%. The spike in the VIX, a measure of market volatility, to levels not seen since 2020, further underscored investor anxiety.
  • Asian Markets Hit Hard: Asian markets were not spared from the global sell-off. South Korea’s Kospi fell 8.77% to 2,441.55, and the small-cap Kosdaq tumbled 11.3% to 691.28, triggering circuit breakers on both exchanges. Taiwan’s benchmark index, the Taiwan Weighted Index, was down over 8%, dragged by tech and real estate stocks. Australia’s S&P/ASX 200 fell 3.7% to 7,649.6. The Hong Kong Hang Seng index dropped 1.62%, while mainland China’s CSI 300 fell 1.21% to 3,343.32, seeing the smallest loss in Asia. 
  • Japan’s Stock Market Crashes: Japan’s Nikkei 225 suffered a severe drop, falling 12.4% to close at 31,458.42. This was its worst day since the 1987 Black Monday crash, with a record loss of 4,451.28 points. The broad-based Topix also fell 12.23%, ending at 2,227.15. Heavyweight trading houses like Mitsubishi, Mitsui, Sumitomo, and Marubeni plunged over 14%, with Mitsui losing nearly 20% of its market cap. 
  • US Treasury Yields Tumble: On recession fears, investors flocked to the safety of US Treasuries, causing the yield on the 10-year note to fall to 3.76%, its lowest level since June 2023. Meanwhile, the 2-year Treasury yield edged slightly higher to 3.900%. The yield curve briefly normalised before re-inverting, signalling ongoing concerns about economic stability.
  • Bitcoin Drops Significantly: Reflecting broader market fears, Bitcoin tumbled from nearly $62,000 on Friday to around $52,000 on Monday. This significant drop of approximately $10,000 highlights the volatile nature of cryptocurrencies, especially in times of financial uncertainty. The decline mirrors investor sentiment across traditional markets, where safe-haven assets were favoured.
  • Increased Market Volatility: The Cboe Volatility Index (VIX), often referred to as the market’s fear gauge, spiked to 34.8, its highest level since the early days of the Covid-19 pandemic in 2020. The VIX’s surge underscores the heightened market uncertainty and investor anxiety as economic concerns grow.
  • Oil Prices Decline: US crude oil prices fell to $72.94 per barrel, down 0.79%, marking their lowest settlement since February. Brent crude decreased to $76.30 per barrel, down 0.66%. The decline in oil prices comes amid broader market sell-offs and fears of an impending recession, despite ongoing geopolitical tensions and OPEC’s production cuts providing some support to prices.

FX Today:

  • GBP/USD Remains Under Pressure: The GBP/USD pair maintained its position above the 1.2750 level after bouncing back from a daily low near 1.2700, closing at 1.2775, a 0.23% decline. Despite continuous selling pressure on the US Dollar, the strong flight-to-safety sentiment is preventing a substantial recovery for GBP/USD. A break below the crucial 1.2710-1.2700 support zone, could lead to a further drop towards 1.2620. On the upside, resistance levels are identified at 1.2780 and 1.2800, with further resistance at 1.2830.
  • EUR/USD Extra Gains Aims for Higher: The EUR/USD pair briefly surpassed the key 1.1000 level on Monday. Initial resistance is at the August high of 1.1008, followed by the December peak of 1.1139. On the downside, the next major support is at 1.0827, followed by 1.0777 and 1.0666. A drop below these levels could target the May low of 1.0649.
  • NZD/USD Continues Rangebound Trading, Bears in Control: The NZD/USD pair declined by 0.40% to 0.5930 on Monday, continuing its rangebound trend. Bulls managed to recover some losses after the pair dipped below 0.5900 earlier, but the Moving Average Convergence Divergence (MACD) indicator suggests that bearish momentum is still strong. The support level was at 0.5910, and a break below this could lead to further support at 0.5890. On the upside, resistance is found at 0.5980, with a breakout above this level potentially signalling a trend reversal.
  • Gold Price Drops Over 1% on Global Market Sell: Gold prices dropped more than 1% during Monday’s session but managed to recover after hitting a six-day low of $2,364 amidst a global market sell-off. The XAU/USD was trading at $2,409, down 1.40%. Should gold fall below $2,400, the next key support would be the at $2,340, followed by $2,277. On the upside, reclaiming $2,450 would bring the peak at $2,477 into focus. A break above this level could target the all-time high at $2,483 and potentially $2,500.

Market Movers:

  • Crypto Stocks Hit Hard: Several bitcoin-related stocks experienced significant declines following the cryptocurrency’s drop below $50,000 for the first time since February. Robinhood plummeted more than 8%, while MicroStrategy plunged over 9%. Coinbase and Marathon Digital also saw notable losses, falling more than 7% and 1%, respectively.
  • Kellanova Soars on Acquisition Speculation: Shares of Kellanova jumped more than 16%, hitting a new 52-week high during the session. This surge was driven by reports that candy maker Mars is exploring a takeover of the company, highlighting the market’s positive reception to potential acquisition news.
  • Apple Falls on Buffett’s Stake Reduction: Apple shares dropped nearly 5% following news that Warren Buffett’s Berkshire Hathaway cut its stake in the iPhone maker by half. The sell-off came after Berkshire disclosed in its earnings filing that its Apple holdings were valued at $84.2 billion at the end of the second quarter, indicating a reduction of over 49%.
  • Palantir Declines Ahead of Earnings: Palantir’s stock fell more than 2% ahead of its quarterly results. Analysts estimate the company will report second-quarter revenue of $652 million, in line with its forecast of $649 million to $653 million, with expected earnings of 8 cents per share.
  • Major Tech Stocks Decline: Prominent tech stocks dropped amid the market sell-off. Amazon fell more than 4%, Microsoft slid over 3%, and Tesla declined by more than 4%. Meta, the parent company of Facebook and Instagram, saw its shares fall over 2%, reflecting widespread investor concerns about the tech sector.
  • Intel Continues Post-Earnings Slide: Intel shares dropped more than 6%, continuing a sharp decline following disappointing fiscal second-quarter results last week. The company announced plans to cut 15% of its workforce, leading to a 26% plunge in shares on Friday, marking Intel’s biggest drop in 50 years.
  • Tyson Foods Gains on Strong Earnings: In contrast to the broader market trend, Tyson Foods shares gained around 2% after posting fiscal third-quarter adjusted earnings of 87 cents per share, surpassing analyst expectations of 67 cents. The company also reported revenue of $13.35 billion, exceeding the consensus estimate of $13.21 billion.
  • GameStop Extends Losses: GameStop shares fell by around 2%, continuing losses from the previous session. The decline followed reports on social media platform X that Game Informer, a subsidiary of GameStop, had been shut down after 33 years, with all employees laid off.

Monday’s market decline underscores the heightened anxiety among investors as fears of a US recession, disappointing economic data, and concerns over the Federal Reserve’s response to economic conditions drove significant declines across major indexes. The Dow’s drop, the worst in nearly two years, along with sharp losses in the S&P 500 and Nasdaq Composite, highlights the breakability of recent market gains. The tech sector, which had been a strong performer, saw substantial sell-offs, while global markets echoed the turmoil with significant drops in European and Asian indexes. As volatility spiked to levels not seen since the early days of the pandemic, the flight to safety was evident in the movement of Treasury yields and the performance of traditional safe-haven assets like gold. This widespread downturn emphasises the market’s sensitivity to economic indicators and policy decisions, leaving investors cautiously navigating the turbulent financial landscape.