Wall Street crashes on recession fears

Wall Street's main indexes slumped on Monday as fears of the United States tipping into recession following weak economic data last week rippled through global markets.

Bourses from Asia to Europe took a beating and bond yields slipped as investors rushed to safe-haven assets and bet the US Federal Reserve would now need to cut interest rates aggressively to spur growth.

The selloff was brutal, with the so-called Magnificent Seven group of stocks -- the main driver for the indexes hitting record highs earlier this year -- set to lose a combined $1 trillion in market value.

Apple fell 4.6 per cent after Berkshire Hathaway halved its stake in the iPhone maker, suggesting that billionaire investor Warren Buffett is growing wary about the broader US economy or stock market valuations that have gotten too high.

Nvidia slid 5.6 per cent after reports of a delay in the launch of its upcoming artificial-intelligence chips due to design flaws. Microsoft and Alphabet fell about 3.0 per cent each.

At 10:04am the Dow Jones Industrial Average fell 860.39 points, or 2.18 per cent, to 38,870.14, the S&P 500 lost 133.97 points, or 2.51 per cent, to 5,212.59 and the Nasdaq Composite lost 520.61 points, or 3.1 per cent, to 16,255.55.

A weak jobs report and shrinking manufacturing activity in the world’s largest economy, coupled with dismal forecasts from the big US technology firms, pushed the Nasdaq 100 and the Nasdaq Composite into a correction last week.

The disappointing jobs data also triggered what is known as the ‘Sahm Rule’, seen by many as a historically accurate recession indicator.

Traders now see an 88 per cent probability that the US central bank will cut benchmark rates by 50 basis points in September, compared with an 11 per cent chance seen last week, according to CME’s FedWatch Tool.

“I don’t think the Fed would go 50 basis points because at the same time it would imply that the Fed was wrong, that a recession is right around the corner and it would do more to increase investor tension than it would to calm nerves,” said Sam Stovall, chief investment strategist at CFRA Research.

Chicago Fed President Austan Goolsbee downplayed recession fears but said that Fed officials need to be cognizant of changes in the environment to avoid being too restrictive with interest rates.

The CBOE Volatility index, also known as Wall Street’s ‘fear gauge’, breached its long-term average level of 20 points last week and was currently at 40.63.

US Treasury yields tumbled to their lowest in a year and a closely watched gap between two- and 10-year Treasury notes turned positive for the first time since July 2022, usually indicating US economy is heading into a downturn. Offering some respite, data showed US services sector activity rebounded from a four-year low in July amid a rise in orders and employment.

All 11 major S&P 500 sectors were trading lower, with information technology and consumer discretionary the worst hit. Declining issues outnumbered advancers by a 13.06-to-1 ratio on the NYSE and by a 11.8-to-1 ratio on the Nasdaq.

The S&P 500 posted 13 new 52-week highs and 23 new lows while the Nasdaq Composite recorded 6 new highs and 438 new lows.Pringles maker Kellanova soared 14.8 per cent after a Reuters report said candy giant Mars was exploring a potential buyout of the company.