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The JSE building in Sandton. (Fivepointsix/Getty)
The rout in riskier areas of global markets deepened as concerns grew about slowing growth in the world’s largest economy, with stocks tumbling and traders flocking to the safety of bonds.
Stock markets were hammered from New York to London and Tokyo. About 95% of the S&P 500 was decimated, putting the index on track for its biggest drop in nearly two years. Big tech stocks fell even more, with the Nasdaq 100 posting its worst start to a month since 2008. An index measuring the “Big Seven” companies, including Nvidia and Apple, plunged nearly 10% at one point.
The Johannesburg Stock Exchange All-Share Index closed down about 1%. As commodity prices plunged, Implats fell nearly 6% to 83.01 rand, DRD Gold fell 5% to 16.91 rand and Sibanye fell 4% to 18.63 rand. Absa fell nearly 4% to 148.30 rand.
The rand hit 18.78 to the dollar during the day and was at 18.49 on Monday evening.
Just as the stock market began to celebrate the Fed’s first rate cut signal, a perfect storm hit: unexpectedly weak U.S. economic data, sparking recession fears, poor corporate earnings, and unfavorable seasonal trends. The repricing was so rapid that the swap market once priced in a 60% chance of an emergency rate cut from the Fed in the coming week. Although the probability has since fallen to around 32%, the bet is a testament to investors’ anxiety.
“The economy is not in crisis, at least not yet,” said Callie Cox of Ritholtz Wealth Management. “But it’s fair to say we are in the danger zone. If the Fed doesn’t do a better job of acknowledging the cracks in the job market, they risk losing control. There’s nothing broken yet, but things are getting worse, and the Fed risks falling behind.”
The sell-off in Japan reached a crescendo as traders unwound popular carry trades, sending the yen surging 2.5% and causing the Topix to fall 12% and post its biggest three-day drop since 1959. On Monday, SoftBank Group Corp. lost $15 billion in market value.
The S&P 500 and Nasdaq 100 both fell 2.5%. Nvidia shares plunged 5.5% on reports that its upcoming artificial intelligence chip will be delayed. Further fueling risk aversion was news that Warren Buffett’s Berkshire Hathaway had significantly reduced its stake in Apple. Wall Street’s “fear index” – the VIX – is heading for its highest level since 2021.
The 10-year Treasury yield fell 2 basis points to 3.77%. The dollar fell as the prospect of looser monetary policy from the Federal Reserve weakened the dollar’s appeal. A measure of perceived risk in the U.S. corporate credit market saw its biggest one-day gain since March 2023 after the collapse of Silicon Valley Bank. Cryptocurrencies were hit by risk aversion in global markets, causing Bitcoin to fall more than 16% at one point. Commodity prices from copper to gold to oil plummeted.
“Decelerating or slowing economic growth has triggered a classic risk-off trade, with short-dated Treasuries being the primary beneficiary,” said Gary Puzeggio of CIBC U.S. Private Wealth. “What we are seeing is an unwinding of trades that relied on the longer-term Fed rate hike theme. We will be watching short-term funding markets closely for signs of further near-term damage.”
For Bank of America Corp.’s Michael Gapen, the market is once again ahead of the Fed.
“Incoming data raises concerns that the U.S. economy is in trouble. A rate cut in September is a foregone conclusion, but we do not think the economy needs a big rate cut, and the cut should not exceed recessionary levels.”
Tony Pasquarillo of Goldman Sachs Group Inc. said that as U.S. stocks extend their losses, investors should hedge their risk exposure even if they own high-quality assets.
“Sometimes it’s time to accelerate, sometimes it’s time to brake — I tend to reduce exposure and roll execution,” Pasquariello wrote in a note to clients, adding that it’s hard to imagine August being one of those months when investors should take significant portfolio risk.
Wall Street’s ‘fear index’ surged to its highest level since 2021 as the U.S. stock market plunge vindicated some of Wall Street’s most prominent short sellers, who doubled down on warnings about the risks of a slowing economy.
Mislav Matejka of JPMorgan Chase & Co., whose team was among the last pessimists this year, said weakening business activity, falling bond yields and a deteriorating earnings outlook will continue to weigh on stocks. Michael Wilson of Morgan Stanley warned that the risk-reward ratio was “unfavorable.”
“This does not look like the ‘recovery’ backdrop one had hoped for,” Matka wrote. “We remain cautious on equities and expect a ‘bad is bad’ phase to be imminent,” he added.
As the global stock sell-off intensified on Monday, JPMorgan Chase & Co.’s trading desk said the rotation out of technology stocks may be “largely complete” and the market is “approaching” a tactical opportunity to buy on dips.
JPMorgan Chase & Co.’s position intelligence team wrote in a note to clients on Monday that retail investors’ stock buying has slowed rapidly, positioning of trend-following commodity trading advisors has fallen sharply across stock market sectors, and hedge funds are net sellers of U.S. stocks.
“Overall, we believe we are approaching a tactical opportunity to buy on the dip, and our tactical positioning monitors the possibility of further declines in the coming days. That being said, whether we get a strong rebound may depend on the macro data going forward,” wrote John Schlegel, head of position intelligence at JPMorgan.
JSE and Rand information updated by News24.
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