Global financial markets staged a "Black Monday." Risk assets fluctuated violently, with Japanese and South Korean stock markets plummeting together. Many indices triggered circuit breakers, suspending trading at one point. Pre-market trading in the US stock market is also precarious, and tonight is bound to be sleepless.
Global markets crashed across the board, and the "panic index" continued to soar.
In particular, the Japanese stock market triggered the TOPIX index futures circuit breaker rule early in the morning, also the first circuit breaker since the integration of Japan's derivative market in March 2014. $Nikkei 225 (.N225.JP)$The index plunged more than 13% intraday, ending down 4,451.28 points, a 12.4% drop, marking the largest single-day drop in the past 34 years and wiping out all of this year's gains. Meanwhile, Japan's TOPIX index$TOPIX (.TOPIX.JP)$also fell more than 12%.
On the Korean stock market, $Korea Composite Index (.KOSPI.KR)$intraday declines exceeded 10%, ending down 8.77%, with intraday circuit breakers triggered. The KOSDAQ index in South Korea saw intraday declines of over 13% and intraday circuit breakers were also triggered. In addition, the stock markets of Singapore and Taiwan also performed poorly, with Taiwan's weighted index falling by over 8%.
In addition to the Asia-Pacific stock markets, major US stock index futures were hit the hardest, $NASDAQ 100 Index (.NDX.US)$with futures falling by as much as 5.8% at one point before narrowing to a 4.49% decline; $S&P 500 Index (.SPX.US)$futures fell by more than 3% at one point before narrowing to a decline of about 3%.
The pessimistic expectations for the application prospects of AI technology have triggered a wave of selling by technology giants, with some tech stocks' performance falling short of expectations, further deepening market panic. Large technology giants fell before the market opened, $NVIDIA (NVDA.US)$They fell more than 9%.$Apple (AAPL.US)$,$Broadcom (AVGO.US)$fell more than 8%,$Tesla (TSLA.US)$,$Taiwan Semiconductor (TSM.US)$falling by more than 7%, and the US stock market is bound to face intense volatility tonight.
July non-farm payroll data unexpectedly disappointed, exacerbating concerns about a 'hard landing' for the U.S. economy, and the S&P 500 VIX index futures, known as the 'fear index'$CBOE Volatility S&P 500 Index (.VIX.US)$have been skyrocketing in recent trading days. As of the time of writing, the VIX index has soared by nearly 120% to 51.29 points.
Cryptocurrency markets have also been under pressure from global safe-haven sentiment. $Bitcoin (BTC.CC)$Prices have been volatile since the evening of the 4th, with prices dropping below $49,000 at one point today, according to CoinGlass data. Over the past 24 hours, more than 0.27 million people have been liquidated in the entire market, with a total amount of more than $1 billion liquidated.
As the uncertainty of the global economic outlook intensifies, various types of risk assets face increasingly severe tests.
Weak economic data has raised concerns about a recession.
On the occasion of the escalation of the Middle East situation, a series of recent weak data has also accelerated the market's concerns about a recession in the US economy:
The US July ISM manufacturing PMI recorded 46.8, the largest contraction in eight months.
Initial claims for US unemployment benefits last week rose by 0.014 million to 0.249 million people, a new high in nearly a year.
Employment in non-farm industries increased by 0.114 million people in July, but the number was far lower than the expected 0.175 million people.
The US unemployment rate in July 2024 rose to 4.3%, a new high since October 2021, higher than the previous 4.1%.
However, the Fed's decision to stand pat at the interest rate meeting, as scheduled, has made investors even more pessimistic about the future development. The big surprise in July's non-farm payroll data has intensified the market's concerns about a "hard landing" for the US economy, eventually leading to a fierce sell-off.
To make things worse, the latest quarterly report from stock god Buffett has sent market panic soaring--- $Berkshire Hathaway-B (BRK.B.US)$In the second quarter, it significantly reduced its holding of shares from 0.789 billion shares in the first quarter to about 0.4 billion shares, with a market cap of approximately $84.2 billion, a significant drop from $174.3 billion at the end of the first quarter. Meanwhile, Berkshire's cash reserves soared to $277 billion in the second quarter.$Apple (AAPL.US)$Please use your Futubull account to access the feature.
In addition, Buffett has recently sold a large amount of his "second position" holdings. $Bank of America (BAC.US)$Between July 30 and August 1, Berkshire Hathaway sold 19.22 million shares of Bank of America stock, cashing out $0.779 billion.
Continuous large-scale selling actions have sparked market speculation as to whether Buffett also believes that the current US stock market contains hidden risks. Some even interpret this as a significant pessimism about the prospects of the US economy - after all, when Berkshire cannot find entire businesses or individual stocks that can be bought at reasonable prices, it often lets cash pile up. In terms of product structure, the operating income of products worth 10-30 billion yuan is 401 / 1288 / 60 million yuan respectively.
Looking back at history, the period before and after the US Federal Reserve cut interest rates often marked the beginning of a sharp decline in the US stock market. From 1998, 2000, 2007 to 2019, the Federal Reserve's interest rate cuts were all accompanied by a significant correction in the US stock market.
Against the backdrop of increasing recession expectations, the following traditional safe-haven sectors have relatively strong investment value:
Necessary consumer goods: these basic products are relatively stable in terms of demand during economic downturns, including food, beverages, household goods, etc.
Medical care: due to its relatively low correlation with economic cycles, the stock prices of medical care companies usually outperform the broader market during economic downturns.
Utilities: utility companies provide basic services such as electricity, natural gas, and water, with relatively inelastic demand. Therefore, they have a certain level of defensive capabilities in times of economic uncertainty.
Precious metals: Precious metals such as gold tend to perform well during periods of economic uncertainty due to their traditional safe-haven properties.
High dividend: Companies with stable free cash flow and higher dividend yields usually provide relatively stable returns for investors during market fluctuations.
According to China International Capital Corporation's analysis of 18 US recessions in history, from a chronological perspective, defensive assets perform best in the early stages of a recession, while risk assets and growth stocks undergo larger declines. As time passes, US stocks gradually recover, and by the end, stock assets, especially growth stocks, that are driven by demand, as well as commodities and emerging markets, which have begun to anticipate economic bottoming and recovery, enjoy the greatest flexibility.
Chart: During the US stock market retreat, daily consumption and defense sectors generally experienced smaller declines, which is consistent with the characteristics of defensive stocks; however, the real estate, financial services, media, utilities, insurance, and other sectors suffered more severe declines during the deep recession.
Interest rate cut storms are about to break out! Wall Street’s major banks adjust quickly to the interest rate cut script.
Following the data showing slower-than-expected job growth and an unexpected rise in unemployment rate in the US triggering the Sam rule, the market's expectation of interest rate cut has quickly risen. According to CME's FedWatch tool, there is over 97.5% chance of the Fed cutting rates by 50 basis points in September, and the market has fully priced in the possibility of a 50 basis point rate cut in September.
Major banks have also quickly revised their interest rate cut scripts. Comparing the revisions, we can see:
Goldman Sachs: increased the expectation for the Federal Reserve to cut interest rates 25 basis points to three times, and did not rule out the possibility of a 50 basis point rate cut in September.
CitiBank: the Federal Reserve will cut interest rates by 50/50/25 basis points in September, November, and December, respectively, all previously expected to be cut by 25 basis points.
Barclays: added a third interest rate cut in their prediction for the Federal Reserve's decision this year, with a magnitude of 25 basis points.
Bank of America: expected the Federal Reserve to cut interest rates by 25 basis points in September, while the previous expectation was December.
JPMorgan: predicted that the Federal Reserve will cut interest rates by 50 basis points in September and November, and 25 basis points at every meeting thereafter.
Morgan Stanley: predicts that the Federal Reserve will cut interest rates by a cumulative 75 basis points within 2024, in three phases, each time by 25 basis points.
It is worth noting that many radical analysts believe that in the context of increased uncertainty about the recession, the Federal Reserve may unexpectedly cut interest rates. Traders even believe that there is a 60% chance that the Federal Reserve will cut interest rates by 25 basis points within a week.
JP Morgan economists have changed their views on the Federal Reserve's forecasting, and expect a 50 basis point interest rate cut at the September and November policy meetings. They also believe that the Federal Reserve has a "compelling reason" to take action before the scheduled policy announcement on September 18.
Mooers,
Do you think that the US economy is entering a recession?
What strategies do you have in response?
Let's discuss in the comment section together.