Global Recession and Valuation Concerns Rocked Equity Markets
THE GIST (“THE WHAT”)
Fear of global recession gripped the markets overnight following a turbulent start to Japanese stock market. Nikkei index’s worst one-day drop since the crash of Black Monday in 1987, pushing Japan into a bear market. The macro-economic development also marked a major reversal of the most popular ‘carry trades’ strategy used my macro and hedge funds across the globe after the Bank of Japan increased interest rates for the first time in 17 years last week that boosted the Japanese Yen to a 7-month high.
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THE DETAILS (The “How & Why”):
Major U.S. stock indices fell sharply overnight adding to last week’s brutal losses amid growing concerns of a slowing U.S. economy following weaker-than-expected Friday’s jobs report. The jobs growth was sharply lower in the month of July, leaving investors questioning whether the Federal Reserve will have to play catch up in cutting rates ahead of its anticipated 50 basis September rate cut.
The Magnificent seven stocks which include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla collectively lost close to $753 billion in market capitalization. Tech stocks continued to be sold-off amid valuation concerns and fading AI enthusiasm following gloomier outlooks reported by Mag 7 companies last week, further aggravated by reports that Warren Buffett’s Berkshire Hathaway slashed its Apple holdings by half.
Registering its worst day since September 2022, Nasdaq index led the day’s declines, closing the brutal session down 3.43%. The S&P 500 index closed lower by 3% and Dow Jones Industrial Average shed 2.60%.