Global markets spiral as US recession fears solidify

Market panic over a US recession has reached a new high after a raft of poor economic data out of the country, sending stocks tumbling across the world.

The S&P 500 fell 1.4 per cent yesterday and is down more than three per cent over the last three weeks, while the Nasdaq slumped 2.3 per cent and the smallcap Russell 2000 declined three per cent.

Japan was hit most by the fears, with the Nikkei index down 5.8 per cent, its worst performance since March 2020, while the wider Japanese Topix fell 6.1 per cent.

China’s Shanghai Stock Exchange index has dropped one per cent, while Australia’s ASX 200 fell over two per cent.

Europe has been similarly affected, with FTSE 100 falling 1.6 per cent since yesterday afternoon as fears about US weakness began to set in, while Europe’s Stoxx 600 is down 2.3 per cent from the same time.

“The prospect of the US experiencing an economic slump has far-reaching consequences, which is why stock markets were weak around the world on Friday,” Russ Mould, investment director at AJ Bell, said.

The trigger was the release of US purchasing manufacturer index data yesterday, showing that new orders in the country had declined for the first time in three months, while output growth slowed to a marginal pace.

Further fuel was poured on the fire for markets after another raft of poor results from the large US tech stocks.

Then today, US unemployment figures missed expectations, strengthening perceptions that the economy was slipping from its previously strong position.

“US employment data couldn’t have been released at a more sensitive time; markets are wobbling, concerns over Fed policy abound and corporate earnings are in the spotlight,” said Neil Birrell, chief investment officer at Premier Miton Investors.

“The weak data will cause more angst, and concerns over the health of the economy will increase,” said Neil Birrell, chief investment officer at Premier Miton Investors.

Amazon’s stock plummeted seven per cent after market trading as their earnings report showed the e-commerce giant missing revenue estimates and issuing disappointing guidance for the third quarter.

Meanwhile, Intel dropped a whopping 19 per cent after revealing plans to cut over 15,000 jobs to “resize and refocus” its business.

Star stock Nvidia has been the largest victim of the ripple effect from this panic, dropping 6.7 per cent yesterday and down almost 20 per cent over the last three weeks.

“Corporate results are only the tip of the iceberg,” said Pierre Veyret, an analyst at Activtrades. “Indeed, many investors are losing confidence after the Fed held interest rates unchanged during the latest FOMC meeting earlier this week.”

Fears of a US slowdown, or even recession, have left markets hopeful that the Federal Reserve will finally begin to slash interest rates, despite inflation remaining at elevated levels.

Markets are now seeing a cut at every Fed meeting for the rest of the year, with a 32 per cent chance of one of those three being a 50 basis point cut, up from just seven per cent a week ago.

Odds of a 50 basis point cut at the Fed’s next meeting in September have also doubled, from 11.5 per cent to 27.5 per cent, according to data from CME Group.

“As usual, whenever uncertainty rises and confidence drops, investors tend to reduce their exposure to riskier assets and seek safety, which explains the current stock sell-off and increased appetite for treasuries,” said Veyret.

Indeed, US treasuries have rallied throughout the week, with the two-year yield falling to its lowest since May 2023 as markets move towards the safety of bonds and bet on the cuts from the Fed.

“The list of worry points for the market is growing. On top of geopolitical tensions between the West and China, ongoing Middle East violence and the US presidential election, we’ve now got recession fears and that will stoke debate over whether the Fed has acted too late with cutting interest rates,” Mould said.