Red Monday: Emergency rate cut needed?

5 авг.

US equities just experienced their worst day since 2022, with the S&P 500 dropping 3.0%, the Nasdaq falling 3.4%, and the Dow Jones Industrial Average plummeting by 1033 points. All sectors in the US saw declines, with mega-cap tech stocks performing particularly poorly. Notably, NVIDIA saw a sharp fall of 15% during the trading day, though it managed to “recover”, ending down 6.4%.

Some have called for an emergency rate cut from the Fed, but this is unlikely as this event, as it stands, is not an existential threat to the markets. It's just a large sell off.

Did US stocks get off lightly?

Ahead of the US trading session, Japan's stock market experienced its steepest decline since Wall Street's Black Monday in 1987, fueling fears of widespread market instability.

Despite the severe sell-off, some relief came from the ISM Services PMI, which indicated a stronger rebound in the services sector, helping to alleviate investor concerns to some extent. Riskier assets, such as Bitcoin, were not spared, plunging from nearly $62,000 on Friday to around $54,000 by Monday.

Contributing factors to the market turmoil include fears that the Federal Reserve is lagging in cutting interest rates, potential unwinding of the Yen carry trade, and the Sahm rule signaling the onset of a recession.

This rule signals the onset of a recession when the three-month average unemployment rate rises by 0.5 percentage points or more above its lowest point in the past year. The threshold was surpassed recently when the unemployment rate climbed to 4.3%.