
Wall Street abandoned a popular strategy that had helped offset high interest rates, and U.S. stocks witnessed their third consecutive trading day of steep falls as recession fears grew.
Monday morning saw a 2.5% decrease in the Dow Jones Industrial Average, a 900-point drop in the S&P 500, and a 2.5% dip in the tech-focused Nasdaq.
The Bureau of Labor Statistics released less-than-expected job numbers on Friday, revealing that just 114,000 new jobs had been created in the economy and that the unemployment rate in the United States had increased to 4.3%.
This raised concerns that the economy might enter a recession and that the Federal Reserve should have lowered interest rates by now.
In an effort to curb inflation, the central bank has spent the previous few years maintaining those rates at levels last observed before the Great Recession.
However, some financial and economic data indicate that this has led to a sharp weakening of the US economy.
Aside from the jobs report, traders have also been responding to a downgrade in Amazon’s outlook and an increasing perception that the tech stock market’s recent surge, which sent the Nasdaq to a new high just one month ago, was exaggerated.
Among the businesses experiencing significant drops in their stock values on Monday morning are:
Nvidia was down 6%. Because of its distinctive graphics card computer chips, Nvidia has been at the center of the tech stock run-up.
Apple saw a 3% Monday decline. Warren Buffett’s Berkshire Hathaway company disclosed over the weekend that it has sold almost half of its ownership in the tech behemoth.
Microsoft, -3%, and Amazon, -4%.
Although macroeconomic factors affected the markets, some analysts noted that traders’ abandonment of a well-liked tactic to offset the Fed’s increased interest rates also played a significant role in the sell-off.
Until recently, the Bank of Japan maintained lower interest rates in order to encourage investment in the yen, even as the U.S. central bank raised the cost of borrowing domestically. Wall Street started borrowing against the yen at reduced interest rates to invest more cheaply in desirable assets, and that proved to be effective.
The trade has now reversed: Fed Chair Jerome Powell stated that a rate increase in September is very probably imminent, while the BOJ has indicated that it plans to raise interest rates.
As a result, the majority of the U.S. dollar’s gains for the year have been lost.
In the meantime, more and more investors are placing their money in US Treasury bonds, which are thought of as “haven” investments that serve as safe havens during unpredictable times.
The 10-year note’s yield dropped to 3.68%, the lowest since June 2023. Given that mortgage rates follow the 10-year yield, this might both alleviate concerns about a recession and boost the housing market.
Significant drops in the price of cryptocurrencies like Bitcoin and Ethereum were also observed. Ethereum lost 17% to over $2,200, essentially wiping out its gains for the year, while Bitcoin sank nearly 14% to around $50,000, its lowest point since last spring.