2024-08-05 19:35:02
The S&P 500 Index opened down 4.2% and NASDAQ 100 fell 5.4% after global markets overnight plunged over investor worry 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.
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 on Friday that 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%, the highest since October 2021. Both were worse than economists’ average forecasts.
Most worrying was the sharp rise in the jobless rate triggering what economists call the Sahm rule. It says that if unemployment, based on a three-month average, 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.
The weak jobs report coupled with downbeat earnings updates from Amazon and Intel and Thursday’s softer-than-expected U.S. factory activity survey pushed the S&P 500, Nasdaq and Dow lower on Friday, with the Nasdaq officially entering “correction” territory.
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Wall Street’s ‘Fear Gauge’ spikes as stocks tumble
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
Tech giants Nvidia, Apple, Amazon take a beating
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 decison 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
This doesn’t look like a recession, Fed’s Goolsbee says
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 plummet over U.S. recession and Mideast war fears
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
