Monday Market Meltdown: Why Are Stocks Crashing?

Global Stock Market Turmoil

An unprecedented wave of selling has engulfed global stocks, with the Japanese Nikkei plummeting by nearly 15% and the Hang Seng heading towards a 2.80% decline, dragging down Chinese indices as well.

Nasdaq futures are down by 4%, while futures for other major indices are also showing significant losses.
Safe-haven assets like the yen and the Swiss franc have seen an increase in demand.

Concerns that the Federal Reserve may be behind the curve in providing policy support for a slowing US economy are driving investors towards the safety of bonds.
Cryptocurrencies have also taken a hit, with Ether recording its worst drop since 2021.

Recession Fears and Market Behavior

As markets tumble, bond traders are piling into bets that the US economy is on the brink of a recession, anticipating that the Fed will need to cut interest rates to avert it.

Geopolitical tensions have added to the pessimistic sentiment, with Israel gearing up for a potential attack from Iran and regional militias.

US stock markets have plunged and bonds have rallied in Asia, as fears of a US recession prompted investors to flee risky assets, betting on the need for swift rate cuts to sustain growth.

US Economic Indicators

Friday’s data revealed that US nonfarm payrolls increased by 114,000 in July, one of the weakest readings since the start of the pandemic.
Job growth was revised downward for the previous two months, while the unemployment rate unexpectedly rose for the fourth consecutive month to 4.3%.

This triggered concerns of a looming recession, closely monitored by the Federal Reserve.

Economic Outlook and Analysts’ Predictions

Goldman Sachs analysts raised the probability of a recession in the next 12 months by 10 percentage points to 25%.
They noted the Fed’s substantial policy leeway to ease monetary conditions, potentially limiting the risk.

JPMorgan analysts were even more pessimistic, estimating a 50% chance of a US recession.
They forecasted a 50-basis-point rate cut in September, followed by another cut in November, in response to the Fed falling significantly behind the curve.

Market Volatility and Future Uncertainty

An escalating conflict in the Middle East threatens to introduce further turmoil to the markets as investors brace for a turbulent second half of the year.

The bond market volatility index has risen, and Wall Street’s fear gauge, the VIX, has surged to its highest level in almost 18 months.
Attention is also growing regarding the already chaotic US election race.