Dow Plummets 900 Points, Japanese Stocks Face Worst Crash Since 1987 Amid U.S. Economic Jitters

ANALYSIS — Wall Street experienced significant losses Monday amid growing fears of an economic slowdown in the United States and a resulting global market sell-off.

The S&P 500 dropped by 3.1% in morning trading, following its worst week in three months. At 10:10 a.m. Eastern time, the Dow Jones Industrial Average decreased by 956 points, or 2.4%, and the Nasdaq composite fell 4%.

This downturn mirrored similar drops worldwide. Japan’s Nikkei 225 plunged 12.4%, marking its worst day since the 1987 Black Monday crash. South Korea’s Kospi index tumbled 8.8%, European markets sank over 2%, and bitcoin lost 9.5%.

Friday’s disappointing U.S. employment report fueled the sell-off, showing a hiring slowdown much steeper than expected. Economists fear that the Federal Reserve’s prolonged high-interest rates aimed at curbing inflation have disproportionately slowed economic growth.

Even traditionally safe assets like gold fell, slipping 1.4%. Traders now speculate that the Federal Reserve might consider an emergency rate cut before its next scheduled meeting in mid-September. The two-year Treasury yield, tightly linked to Fed expectations, dipped from 3.88% on Friday to 3.81% Monday.

“The chances of a Fed emergency rate cut appear slim,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Such actions are typically reserved for severe crises, not current unemployment rates of 4.3%.”

Jacobsen suggested that the Fed might stop shrinking its bond holdings as a symbolic gesture acknowledging current economic challenges. Nonetheless, a recession remains uncertain with ongoing economic growth.

Jerome Powell, the Federal Reserve Chair, emphasized the Fed’s capability to adapt should the job market weaken further. After maintaining the federal funds rate last week, Powell highlighted their readiness to respond to economic shifts.

Goldman Sachs economist David Mericle increased the probability of a recession to 25% from 15% post-Friday’s jobs report. Despite this, he cited the overall stability of other economic data and the absence of significant financial imbalances.

Wall Street’s recent losses might also stem from an overvalued stock market buoyed by artificial intelligence advancements and anticipated interest rate cuts. Analysts had cautioned that rapid stock price increases had outpaced corporate earnings.

Indeed, some U.S. stocks slightly recovered Monday morning following stronger-than-expected growth in U.S. services businesses, highlighting resilience in the arts, entertainment, recreation, and food service sectors.

However, companies closely tied to economic performance faced steep drops. The Russell 2000 index, representing small-cap companies, fell 4.4%, dampening a recent recovery streak.

Big Tech stocks took significant hits as well. After Warren Buffett’s Berkshire Hathaway reduced its stake in Apple, the tech giant’s shares fell 5%. Nvidia, emblematic of Wall Street’s AI excitement, saw a 9.1% drop due to revised profit forecasts and delayed AI chip reports.

The stock movements of these major tech companies, dubbed the “Magnificent Seven,” heavily influenced broader indexes like the S&P 500 because of their substantial market values.

Adding to market instability, geopolitical tensions such as the Israel-Hamas conflict pose risks of oil price volatility, impacting broader global stability. With U.S. elections approaching, further policy uncertainties loom, exacerbating market volatility and potentially influencing electoral outcomes.