Posted by Mathieu Tancrez on 8/6/2024
In early August 2024, global stock markets were hit by a sharp downturn, stirring fears of a potential recession. The sell-off, which began on Monday, August 5th, was driven by a combination of factors, including disappointing U.S. economic data, unexpected policy changes in Japan, and a broader re-evaluation of risk across global financial markets.
One of the most significant triggers was a weak U.S. jobs report, which showed a slowdown in employment growth, raising concerns about the resilience of the American economy. The report revealed that non-farm payrolls increased by only 114,000 in July, far below expectations, and the unemployment rate rose to 4.3%, its highest level since October 2021. This slowdown in job creation added to the growing anxiety about a potential economic downturn​.
At the same time, the Bank of Japan unexpectedly raised interest rates, which further fueled market volatility. It raised its key short-term interest rate at its July 2024 meeting to around 0.25% from the prior range of 0 to 0.1% it set in March. The rate hike led to a stronger yen, disrupting global investment strategies, particularly the yen carry trade, where investors borrow at low Japanese interest rates to invest in higher-yielding assets elsewhere. This shift prompted a broad sell-off in equities as investors faced margin calls and had to quickly unwind trades which were falling in Yen value. Unwinding lots of trades fast caused the stocks to fall in value. They also had to re-assess their positions in light of changing global economic conditions​.
As a result, major U.S. stock indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq all suffered significant losses.
Dow Jones: down 4.0% over the two days
S&P 500: down 4.8%
Nasdaq: down 5.8%
Nikkei: down 17.5%
VIX: up 107.5%
The recent market turbulence has amplified concerns about an impeding recession, with investors and analysts increasingly worried about a potential broader economic downturn. The persistent volatility and uncertainty highlight the delicate state of the current economic landscape and the significant challenges that may be on the horizon.