Monday's session on Wall Street was marked by a strong sell-off in stocks. The Dow Jones index had its worst session in almost two years. Investors are growing fears of a recession in the US economy.
The Dow Jones Industrial closed down 2.60 percent, or 1,033 points, to 38,703.27 points. This is the worst session for this index in almost two years, and during the day the declines were even greater, reaching as much as 1,200 points.
The S&P 500 lost 3.00% at the end of the day and is at 5,186.33 points. The index is currently about 8% lower than its recent high.
Nasdaq Composite fell 3.43 percent and is at 16,200.08 points.
Wolfe Research believes the current market volatility will continue into the coming months. “Given the mixed performance of the Mag 7ł (seven largest technology stocks) last week, election uncertainty, and now concerns about the U.S. economic outlook, we expect these sharp rotations to continue into the seasonally weaker August-October periods,” chief investment strategist Chris Senyek wrote in a note Monday.
Senyek warned that market expectations regarding interest rate cuts once again overtaking the Federal Reserve.
Fears of a US recession were a major culprit in the global market slump following Friday's disappointing July jobs report.
Investors are also concerned that the Federal Reserve is overdue in cutting interest rates to shore up the economic slowdown, with the central bank opting instead to keep rates at their highest level in two decades last week.
Investors continue to sell off large-cap tech and AI stocks. Tech stocks were among the worst performers on Monday.
Nvidia down more than 7 percent. Apple down more than 6 percent after Warren Buffett's Berkshire Hathaway has cut its stake in the iPhone maker by half.
Tesla was also among the stocks losing value, falling by more than 5 percent.
“[Nasdaq] was very overbought in July, and the same is true for semiconductors. And a lot of that enthusiasm for AI hasn't been tested in the real world yet,” Turnquist said, adding that “this isn't the end of the AI story.”
JPMorgan analysts say the rotation from technology stocks to other sectors has likely already occurred and the market is approaching a point where tactical buying at the bottom can be considered.
“People were basically lulled into a sense of security, but the market itself was very susceptible to a correction – and weaker-than-expected economic and employment data were the catalyst for the correction,” said Sam Stovall, chief investment strategist at CFRA Research.
Chicago Fed President Austan Goolsbee, quoted by CNBC, estimates that the Fed will act if the situation in the US economy will worsen, and restrictive policies make no sense when the weakening in the economy is visible.
“The Fed's job is clear: maximize employment, stabilize prices and maintain financial stability. … We look to the future. If the aggregate conditions start to align, if any one of those conditions worsens, we'll fix that,” Goolsbee said.
He added that restrictive policies do not make sense when the economy is weakening. According to the economist, July data from the US labor market do not signal a recession, and the Fed may wait until September for more data.
Main image source: EPA