Rattled investors have rocked markets in Asia and Europe amid fears of a slowing U.S. economy.
Fears over a possible recession in the U.S. are reverberating throughout international markets, sparking a global sell-off. Japan's benchmark Nikkei stock index logged its worst single-day decline since 1987, plunging 12.4, while South Korean stocks dropped about 9% and European markets opened lower.
Nearly everything on Wall Street is tumbling. As reported by The Associated Press: "The S&P 500 was down by 2.4% in midday trading and on track for its worst day since 2022. The Dow Jones Industrial Average was reeling by 864 points, or 2.2%, as of 11:40 a.m. Eastern time, and the Nasdaq composite slid 2.7%."
It all started with the bad jobs report in the U.S. on Friday, according to Michael Angelucci of Level Financial Advisors.
"A lot of investors had felt that the Fed had been waiting too long to do something. And when this report came out, the 4.3 unemployment rate triggered something that's known as the Sahm Rule -- it's a signal for recession," he explained. "So what that told people was the Sahm Rule was in play, so to speak, and now a recession could be coming, and therefore the Fed waited too long to start cutting interest rates. And so investors start selling stocks."
While talks of a possible recession have been ongoing since the Federal Reserve began hiking interest rates over two years ago, it's now starting to come home to roost.
"Markets don't like uncertainty. Markets certainly do not like potential recession and what that can do to corporate profits. And what we're seeing here is since mid-July, including what's likely to take place this morning, is the average stock is down about 8% from its mid-July highs. That's right on the borderline of being technically called a correction. Not a bear market, but a correction in stock prices," said David Sowerby, Managing Director and Portfolio Manager for Ancora. "And that's what the market's trying to digest today."
As for why the U.S. jobs report would impact Nikkei and the other global markets, everything is intertwined, said Sowerby.
"Japanese stocks are certainly getting the tough message today. They're down 12%. And they're down in part because their Bank of Japan is likely to have to raise interest rates marginally. And that's what's sending overseas markets down, in particular Japan, down 12%,' he said. "We're seeing here closer to home that so many of those priced for sainthood, big tech stocks, those are down more than 10% from their mid-July highs. So they are already in technically a correction, many of them down 15% or more."
While the developments may have some investors worried, Angelucci suggests to just stay the course and avoid making any rash decisions.
"What's going on in the markets is not Main Street actions. It's Wall Street actions. It's those big investors that are unwinding trades or have cash flow issues or trying to beat the market and selling one stock and buying something else or moving to U.S. Treasuries to try to make money for the investors they're investing for," he said. "I don't think that this is something that's going to be long standing."
It certainly isn't to the level of the stock market crash in 2008, Angelucci added.
"This is not like a macro shock like we had in '08 when people were finding cheese. The real estate market was a bubble. There were all these investments that were based on faulty models. This is nothing like that," he said. "This is the Fed. People are worried the Fed didn't act soon enough that we might go into a recession and are taking some actions to protect against that."