‘Black Monday’ for global stock markets

NEW YORK/ TOKYO: Global stock markets plunged as “Black Monday” hits Japan amid panic across bourses over fears of recession in the US.

Wall Street’s tech-heavy Nasdaq Composite index tumbled 6.3 percent at the open, with the S&P 500 falling 4.2 percent and the Dow dropping 2.7 percent.

Major European indices were down around 3 percent in afternoon trading.

Tokyo’s Nikkei tanked more than 12 percent in its worst day since the Fukushima crisis in 2011. It also suffered its biggest ever points loss, shedding 4,451.28.

The market meltdown was triggered by a weak US jobs report on Friday which showed the unemployment rate reached its highest since October 2021.

The report came two days after the US Federal Reserved decided, as expected, to keep interest rates at a 23-year high while signaling that it could cut them in September.

It was the first chance for traders in Tokyo to react to Friday’s report showing U.S. employers slowed their hiring last month by much more than economists expected.

Losses elsewhere in the world were nearly as neck-snapping. South Korea’s Kospi index careened 8.8 percent lower, stock markets across Europe sank roughly 3 percent and bitcoin dropped 12 percent.

Black Monday

Black Monday refers to the global, severe and largely unexpected stock market crash on Monday, Oct. 19, 1987. Global losses were estimated at $1.71 trillion. The severity of the crash sparked fears of extended economic instability or even a reprise of the Great Depression.

Bullion

Even gold, which has a reputation for offering safety during tumultuous times, slipped 1.6 percent.

That’s in part because traders are wondering if the damage has been so severe that the Federal Reserve will have to cut interest rates in an emergency meeting, before its next scheduled decision on Sept. 18. The yield on the two-year Treasury, which closely tracks expectations for the Fed, fell to 3.79 percent from 3.88 percent late Friday and from 5 percent in April.

“The Fed could ride in on a white horse to save the day with a big rate cut, but the case for an inter-meeting cut seems flimsy,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Those are usually reserved for emergencies, like COVID-19, and an unemployment rate of 4.3% doesn’t really seem like an emergency.”

“The Fed could respond by stopping” the shrinking of its holdings of Treasurys and other bonds, which could put less upward pressure on longer-term yields, he said. “That could at least by a symbolic action that they’re not blind to what’s going on.”

Chances of recession

Goldman Sachs economist David Mericle sees a higher chance of a recession following Friday’s jobs report. But he still sees only a 25 percent chance of that, up from 15 percent, in part “because the data look fine overall” and he does not “see major financial imbalances.”

Still, stocks of companies whose profits are most closely tied to the economy’s strength took heavy losses on the fears about a sharp slowdown. The small companies in the Russell 2000 index dropped 5.5 percent, further dousing what had been a revival for it and other beaten-down areas of the market.

Big Tech stocks

Making things worse for Wall Street, Big Tech stocks also tumbled sharply as the market’s most popular trade for much of this year continued to unravel. Apple, Nvidia and a handful of other Big Tech stocks known as the “Magnificent Seven” had propelled the S&P 500 to dozens of all-time highs this year, in part on a frenzy around artificial-intelligence technology. They were so strong that they overshadowed weakness for areas of the stock market weighed down by high interest rates.

Apple fell 4.6 percent on Monday after Warren Buffett’s Berkshire Hathaway disclosed that it had slashed its ownership stake in the iPhone maker.

Nvidia, the chip company that’s become the poster child of Wall Street’s AI bonanza, fell even more, 8.3 percent.