Investors slammed the sell button the morning of Monday, Aug. 5, with the Dow Jones Industrial Average sliding more than 1,000 points before the opening bell. The tech-heavy Nasdaq lost 6% while the S&P 500 was down more than 4% before the stock market opened.
The global sell-off started overseas in Japan with the Nikkei index having its worst day since 1987’s Black Monday crash. On Monday, the Nikkei plunged 12.4%.
It was Tokyo traders’ first chance to react to Friday’s U.S. jobs report, where unemployment unexpectedly spiked to 4.3%, triggering a U.S. recession indicator.
Japan’s rout was contagious and U.S. markets slid further Monday than their own initial reaction Friday, when the S&P fell 1.8%. On Monday, the market’s “fear index” surged to levels not seen since spring of 2020.
There is no doubt the sell-off is sparked by recession concerns from the jobs report and worries the Federal Reserve is way behind the eight ball when it comes to cutting rates.
“The Federal Reserve is at real risk of missing the boat, of being too late to the game when it comes to making sure that jobs continue to grow and that workers have good opportunities in the labor market,” former Acting and Deputy Labor Secretary Seth Harris told Straight Arrow News on Friday.
Harris said the disappointing jobs numbers are a warning sign but not a sign of recession.
“We’re beginning to hear from folks on Wall Street, the R word, the discussion of recession,” Harris said. “Now, I don’t think that this report tells us that we’re headed for recession. But as folks on Wall Street begin to start talking about it, that can become a downward spiral as it becomes a decision-making point for businesses.”
“If you think that we’re going to shrink – if the economy is going to slow and shrink – you don’t invest in hiring people, you don’t invest in capital equipment, you don’t invest in expansion, you don’t invest in inventories,” Harris continued. “And so that is the concern.”
In the case Harris describes, negative conditions can become a self-fulfilling prophecy. Will cooler heads prevail? Many assessments of Monday’s sell-offs are that it is an overreaction to the data. But it is not just the labor market and Fed actions feeding into it.
For some time, investors worried tech stocks are overinflated this year, and over the weekend, Warren Buffett’s Berkshire Hathaway announced it sold nearly half its Apple stock in the second quarter. Apple started the day down 8% and dragged down Nvidia and other tech stocks with it.
Bitcoin also fell from around $62,000 Friday night to briefly under $50,000 Monday morning.
“Bitcoin doesn’t look like The New Gold,” Bloomberg Reporter Joe Weisenthal wrote. “It looks like 3 tech stocks in a trenchcoat.”
