Nearly everything on Wall Street is tumbling as fear about a slowing U.S. economy worsens and sets off another sell-off for financial markets around the world.
The S&P 500 was down by 2.1 per cent in midday trading. The Dow Jones Industrial Average was reeling by 763 points, or 1.9 per cent, as of 12:20 p.m. ET and the Nasdaq composite slid 2.4 per cent.
The drops were just the latest in a global sell-off following a 12.4 per cent plunge in Japan’s Nikkei 225, its worst day since the Black Monday crash of 1987.
It was the first chance for traders in Tokyo to react to a Friday jobs report that showed hiring by U.S. employers slowed last month by much more than expected. That has convulsed financial markets, vanquishing the euphoria that had taken the Nikkei 225, a stock market index for the Tokyo Stock Exchange, to all-times highs of over 42,000 in recent weeks.
Professional investors cautioned that some technical factors could be amplifying the action in markets, but the losses were still neck-snapping. South Korea’s Kospi index careened 8.8 per cent lower, stock markets across Europe sank more than two per cent and bitcoin dropped below $55,000 US from more than $61,000 on Friday.
The shakeup began just a couple of days after U.S. stock indexes had jumped to their best day in months, in the wake of Federal Reserve chair Jerome Powell setting the stage for possible rate cuts to begin in September.
But after Friday’s jobs report, there have been rising worries that the Federal Reserve may have kept its main interest rate at a two-decade high for too long, raising risks of a recession in the world’s largest economy.
Now, 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 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, and an unemployment rate of 4.3 per cent 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.”
A rate cut would make it less expensive for U.S. households and companies to borrow money, but it could take time for the effects to boost the economy.
A worldwide decline
Until Friday, there had been relatively few huge market swings in the past year.
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