The US stock markets experienced a significant downturn, with the Nasdaq and S&P 500 both falling by at least 3%. This marked the largest three-day percentage decline for all three major indexes since June 2022, with the Nasdaq and S&P 500 closing at their lowest levels since early May.
Key factors driving the sell-off
- Recession concerns: Weak economic data from the previous week, including a soft US payrolls report, fueled fears of an economic slowdown.
- Apple stock decline: Shares of Apple fell 4.8% after news that Berkshire Hathaway had halved its stake in the company. This move by Warren Buffett’s firm, which also increased its cash holdings to $277 billion, sparked investor concern.
- Tech sector weakness: Other major tech companies, including Nvidia, Microsoft, and Alphabet, also experienced significant declines.
Market Statistics
- Dow Jones Industrial Average: Down 1,033.99 points (2.6%) to 38,703.27
- S&P 500: Down 160.23 points (3.00%) to 5,186.33
- Nasdaq Composite: Down 576.08 points (3.43%) to 16,200.08
The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge,” reached its highest close since October 28, 2020.
Investor sentiment and market dynamics
- Traders are now pricing in an 86% chance of a 50 basis point rate cut by the Federal Reserve in September, with a 14% chance of a 25 basis point reduction.
- The sell-off has particularly impacted the “Magnificent Seven” group of stocks, which had previously driven the market to record highs.
- Some weakness in stocks was attributed to the unwinding of carry trades, where investors borrow from low-interest economies to invest in higher-yielding assets elsewhere.
Despite the overall negative sentiment, US services sector activity in July showed a rebound from a four-year low, with increases in orders and employment.
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Chicago Fed President Austan Goolsbee downplayed recession fears but emphasized the need for the Federal Reserve to remain vigilant about economic changes to avoid overly restrictive interest rates.
Market breadth
- NYSE: Declining issues outnumbered advancing ones by a 9.04-to-1 ratio
- Nasdaq: Decliners led advancers by a 6.44-to-1 ratio
Trading volume reached 16.50 billion shares, significantly higher than the 20-day average of 12.29 billion.
This market downturn reflects growing investor concerns about the US economic outlook and potential policy missteps by the Federal Reserve. The tech sector, particularly the influential “Magnificent Seven” stocks, remains a key focus for market participants as they reassess growth prospects and valuations in light of recent economic data.