By U.S. stocks opened lower after global markets plunged overnight over worry about the health of the U.S. economy.
U.S. labor market weakens, stocks plunge
The Labor Department said the unemployment rate jumped to near a three-year high of 4.3% in July as hiring slowed significantly.
The S&P 500 Index was down 2.3% early Monday afternoon, recovering from the worst of a hair-raising morning drop, while the technology heavy Nasdaq composite fell 2.95% in midday trading and the Dow Jones index lost 1.9% after global markets plunged over worries about a possible recession in the world’s biggest economy.
Driving the rout: Sharp declines in high-flying tech stocks including Nvidia, Apple, Amazon and Google. As investors ran to buy U.S. treasuries, mortgage rates declined, opening the door for some borrowers to refinance, experts said.
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For months, market observers have been talking about a popular trade in which investors borrowed in Japanese yen at very low interest rates, and then invested the borrowed money in high-growth investments like the “Magnificent Seven” tech stocks that include Apple, Amazon, Alphabet, Tesla and Meta.
Concerns about the carry trade had been rising for weeks, in part because of the enormous amount of money involved in it − an estimated $4 trillion. Those concerns soared on July 31, when the Bank of Japan raised interest rates from 0.1% to 0.25%.
That rate is still very low, of course, and in and of itself not a big deal for the carry trade. But it was the bank’s largest rate hike since 2007, and currency traders took note of the implications.
With the yen stronger against the dollar, traders had to spend more to continue holding their “Magnificent Seven” stocks − and many chose to sell instead, helping to fuel a market panic.
−John Rosevear, The Motley Fool
More: What is a carry trade, and how did a small rate hike in Japan trigger a global sell-off?
U.S.-listed shares of crypto-linked companies slumped as Bitcoin fell more than 15% on Monday amid a frenzied selling of risky assets.
The plunge marks a stunning reversal for the sector that until recently was riding a wave of optimism sparked by the approval of exchange-traded funds tied to the spot prices of Bitcoin and Ether, the two biggest cryptocurrencies.
Republican presidential candidate Donald Trump’s pro-crypto speech at a bitcoin conference last month also bolstered confidence, but data showing higher unemployment and weak manufacturing activity squeezed risky assets.
−Reuters
More: Trump pledges national Bitcoin stockpile, to make US ‘crypto capital of the planet’
Outages at Vanguard, Schwab and others
As the stock market cratered this morning, thousands of customers reported outages at Vanguard, Schwab, TD Ameritrade, Fidelity, and Robinhood, according to downdetctor.com.
Schwab posted on X just after 9 a.m. ET “Due to a technical issue, some clients may have difficulty logging in to Schwab platforms” and “hold times may be longer than usual.”
Robinhood briefly halted trading on its 24-hour platform overnight, reports said. Fidelity also posted it was having issues Monday morning.
As trading moved into midday, downdetector.com data showed outages were easing.
−Medora Lee
For regular Americans, there was little to do Monday but sit and watch the stock-ticker train wreck. While it’s hard to stay calm as the stock market reels, amateur investors should at least try.
“My best advice is, don’t panic. Really, because you can’t,” said Catherine Valega, a certified financial planner in Boston.
If anything, financial advisers say, this summer stock swoon would be a great time to buy. “Stocks are on sale today, right?” Valega said. “If you have some cash, let’s go put some money in the market.”
− Daniel de Visé
More: ‘Don’t panic’: What to do when the stock market sinks like a stone
What are circuit breakers?
In the event of a severe market price decline, U.S. exchanges have procedures, known as marketwide circuit breakers, that may halt trading temporarily or, under extreme circumstances, close the markets before the normal end of the trading session. The circuit breakers are calculated daily based on the prior day’s value of the S&P 500 index.
By late Monday morning, the market wasn’t approaching circuit-breaker territory. The S&P 500 was around 5200 − well above 4972.3, the tripwire for a Level 1 breaker.
The circuit breaker was last tripped 10 times in four days during a pandemic sell-off in 2020.
− Medora Lee
How much does the S&P 500 have to fall today to trigger circuit breakers?
Here are the three levels at which marketwide circuit breakers will be hit − and what happens if each one is breached:
◾ Level 1: 7% decline, or at 4,972.3 before 3:25 p.m.: Trading is halted for 15 minutes and then resumes unless level 3 is breached.
◾ Level 2: 13% decline, or at 4,651.5 before 3:25 p.m.: Trading is halted for 15 minutes and then resumes unless level 3 is breached.
◾ Level 3: 20% decline, or at 4,277.24 any time: Trading is halted for the remainder of the day.
Each circuit breaker can only be triggered once a day. For example, if a Level 1 market decline occurred and trading was halted and then reopened, the Exchange would not halt the market again unless a Level 2 decline occurred.
− Medora Lee
The market panic has been building for days.
◾ Over the weekend, billionaire investment guru Warren Buffett ignited speculation he’s soured on stocks as Berkshire Hathaway reported a $276.9 billion cash stake as of June 30, up from $189 billion, after selling another large portion of its stake in Apple.
◾ That reinforced investors’ fears the economy may be slowing. The Labor Department reported Friday that the U.S. economy added only 114,000 jobs in July and the unemployment rate had jumped to 4.3%.
◾ Most worrying was the sharp rise in the jobless rate triggering what economists call the Sahm rule, which says that if unemployment rises by at least a half percentage point over the past 12 months, the nation is probably in a recession. The rule has correctly predicted all U.S. recessions since the 1970s.
− Medora Lee
More: Daily mortgage rates for August 5, 2024: Rate movements mixed
Former President Donald Trump weighed in on the market carnage on Monday, pinning the blame not on overheated tech stocks, but on his November opponent: Vice President Kamala Harris.
“KAMALA CRASH!” Trump wrote in a post on his Truth Social website.
Republican vice presidential nominee JD Vance was more loquacious, using the stock market panic to assail Harris’ leadership. “This moment could set off a real economic calamity around the globe. It requires steady leadership–the kind President Trump delivered for four years,” he wrote on X, formerly Twitter. “Kamala Harris is too afraid to answer media questions and cannot lead us in these troubled times.”
Neither post mentioned President Joe Biden.
The Democratic Party fired back with a post noting job losses during Trump’s one-term presidency. “Trump left office with fewer jobs than when he entered—one of the only presidents to do so. President @JoeBiden and Vice President @KamalaHarris have overseen nearly 16 million jobs created since they took office—one of the greatest economic comebacks of any administration.”
− Dan Morrison
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It’s turning into a wild day for investors, homeowners and people hoping to retire, with lots of market terminology flying across the internet. Here’s a brief glossary of terms giving a name to the financial pain:
◾ Correction. A market drop of at least 10% from a recent high, which typically occurs about once a year
◾ Pullback. When a specific stock or the market retreats 5% to 9.99% from a peak. While corrections may prompt some investors to reach for the Xanax, pullbacks can also be unnerving after long stretches of market calm. That said, pullbacks – which normally occur three to four times a year – are viewed as healthy and as buying opportunities.
◾ Volatility. How much a stock or the market fluctuates in a period of time.
◾ Bear market. When a stock or market index falls 20% or more.
◾ Bull market. A sustained rise in stock prices without a bear market, or a 20% drop.
Wall Street’s most watched gauge of investor anxiety logged its largest ever intraday jump on Monday, as U.S. stock futures tumbled on rising fears the country could be tipping into recession.
The CBOE Volatility Index jumped to a high of 65.73, up about 42 points from its close on Friday, as Wall Street looked set to continue the global stock rout that saw Japanese shares at one point exceed their 1987 “Black Monday” loss.
The VIX was last up 34 points at 57.15, its highest since March 2020.
“It seems like a liquidity crisis … this is very, very unusual,” said Joe Tigay, portfolio manager for Rational Equity Armor Fund.
− Reuters
More: What happens during a recession? Here is what is impacted in the economic downturn
Mortgage rates tumble
With the drop in Treasury yields, mortgage rates have followed.
That could open the door to refinancing, said Greg McBride, chief financial analyst at comparison site Bankrate.
“After months of dawdling at or above the 7% mark, mortgage rates are reversing sharply,” he said. “If you took a mortgage at a rate above 7%, the refinancing door has swung open. If you have an adjustable-rate mortgage you’re looking to get out of, this is your chance. Mortgage rates are likely to fall further in the months ahead, but there are no guarantees and current rates are a bird in the hand for prospective borrowers.”
A 30-year fixed mortgage rate on Friday was 6.4%, according to Mortgage News Daily.
− Medora Lee
Silicon Valley giants are pushing down U.S. stocks Monday morning, Bloomberg reported. Nvidia fell 12%, Apple lost 9.3%, Amazon dropped 7.4%, and Meta lost 7.6%, Bloomberg said. Google fell 5.4%, and Microsoft has lost 4.9%.
− Dan Morrison
How are Treasuries reacting? And what are the odds of a Fed rate cut?
Treasuries are benefitting as safe-haven purchases amid the market turmoil, forcing yields to drop significantly. Yields and bond prices move in opposite directions.
Yields on 10-year Treasuries fell to the lowest in more than a year.
“The Federal Reserve left short-term rates unchanged, but expectations for future cuts increased,” Bas Kooijman, chief executive and asset manager of DHF Capital S.A, wrote in a note referring to the Fed’s decision last week.
This morning, the CME FedWatch tool shows the odds for a Federal Reserve rate cut in September at 87.5%.
After Friday’s weak jobs report, many economists revised their rate cut forecasts. Instead of a quarter percentage point cut, they are now expecting a more aggressive half-point reduction.
− Medora Lee
Chicago Federal Reserve Bank President Austan Goolsbee on Monday said while employment data on Friday was weaker than expected, it does not look like a recession. Fed officials must stay on top of changes in the environment to avoid being too restrictive with interest rates, he added, an apparent nod to recent calls for the Fed to cut rates.
“You only want to be that restrictive if you think there’s fear of overheating,” Goolsbee told CNBC. “These data, to me, does not look like overheating.”
His comments came amid a global stock market selloff that accelerated on Monday in the aftermath of a disappointing U.S. employment report on Friday and the Fed’s decision last week to leave interest rates unchanged. Fed officials, however, signaled they could cut rates at their next meeting in September.
− Reuters
Oil prices dropped to a six-month low as investors worry about recession and war in the Middle East.
A recession would lessen demand for goods and services and therefore, oil for manufacturing and transporting.
Meanwhile, oil traders are worried about escalating tensions in the Middle East after Secretary of State Antony Blinken said Sunday an Iranian attack on Israel could happen within 24 to 48 hours. Iran on Monday reportedly issued a notice to pilots and aviation authorities to avoid its airspace.
WTI was down 0.76% at $72.96 per barrel at 9:16 a.m.ET while Brent fell 0.66% to $76.30 per barrel.
− Medora Lee
