From one end of the planet to the other, the wave of sales that began this morning in Asia spread to European stock exchanges, and Wall Street dealt the final blow to a dark session for the markets. It all started this morning (Spanish time) when the Nikkei, Japan's main stock index, experienced a historic collapse after losing 12.4% in the session, marking its biggest drop since the 1987 crash. In just three days, the main Asian market is on the verge of a bearish cycle, with a 19.5% decline since last Thursday.
The Taiex index of the Taiwan Stock Exchange closed the session with an 8.35% drop, while South Korea's Kospi index fell by 8.77%. And just hours before the American stock market opens its doors, the so-called fear index, the VIX (which measures stock volatility on the S&P 500), has surged over 80% and is now trading above 44 points, reaching highs not seen since the stock market panic during the spring of 2020. Additionally, the sales are occurring in August, a volatile month accustomed to seeing episodes of momentary panic, where trading levels drop to a minimum, making index movements more pronounced.
Europe was unable to avoid the impact, and the Spanish stock market opened with a 3% plunge on its fourth consecutive day of losses, managing to timidly calm down and close with a 2.3% decrease, at 10,423 points, marking its biggest drop of the year. Since last Wednesday, the Spanish selective has retreated nearly 7%. Some stocks took more than half an hour to start crossing buy and sell orders. At the end of the session, the biggest sales were in Fluidra, with a 7.6% drop; energy companies like Acciona, Enagás, and Endesa lose over 4%, with Puig slipping in with a 4.15% drop.
The correction has also spread to the cryptocurrency market, typically considered a safe haven amid stock market declines. The collapse has reached 15% for currencies like Bitcoin and Ethereum, the world's two most traded and capitalized cryptocurrencies. In their case, the correction has been ongoing but has been particularly sharp in the last two weeks, with a 23% drop and Bitcoin threatening to drop below the $50,000 mark.
In Europe, which woke up to 3% declines, the main markets - Paris, London, Frankfurt, and Milan - closed with drops of around 2%. The leading technology company in Europe, ASML, started with a drop of up to 8%, but managed to turn the situation around and ended up rising by 1.2% in the session, unlike its American counterparts.
All eyes were on Wall Street, which anticipated significant declines in pre-market trading that eventually moderated at the opening. The Nasdaq 100, the reference technology index, reduced its correction from 6% to 3% after the first moments of the session. The stars of the market, the seven tech giants of America, also slowed down their decline. The market's largest company by market capitalization, Microsoft, which has lost 13% in the last month, dropped just over 3%. Apple, the other giant with a $3 trillion market cap, lost nearly 5%, a percentage that Tesla also repeated. Meanwhile, the most punished value in the group is Nvidia, the semiconductor giant, which lost almost 8%.
Analysts are currently only talking about a correction, but for the first time in months, they openly qualify it as a possible start of a downward trend in the markets after months of excessive buying in the technology sector, both in the US and globally.
To understand the significant figures of this Monday, one cannot overlook what happened last Friday. It is important to note that the US has been falling for several sessions. In the last two days, the Nasdaq 100 has lost 5% of its value, not including the drop on this Monday. One of the protagonists of last week was the tech giant Intel, which plummeted by 30% after announcing the dismissal of about 15% of its workforce, equivalent to around 15,000 people. Nvidia, a reference in the AI boom, has seen a 26% drop from its highs three weeks ago in New York, pending Wall Street's opening this Monday.
"The results of the major tech companies and some semiconductor companies, although extraordinary, show some shadows and, above all, the intention to accelerate investments in AI by sacrificing immediate profits to capture long-term growth opportunities. This means that the sector will take longer to monetize the benefits of artificial intelligence," resulting in significant losses for the tech giants over the past couple of weeks, coinciding with their earnings reports.
Last Friday, the US confirmed a slowdown in job creation. This is one of the key indicators closely followed by the market. This only "increased fears of a sharp slowdown in the American economy and, therefore, that the Fed may be late in preventing excessive deceleration with significant damage to employment," according to analysts at Renta 4, who now suggest an 80% probability that the Federal Reserve will make an initial 50-basis-point interest rate cut, rather than the previously expected 25 points, at its meeting on September 18.
The explanations from Fed Chairman Jerome Powell, who hinted at this action in 44 days, fell short, although he did not mention the extent of the rate cut. "The Richmond Fed President (with voting rights) emphasized that a 50-point rate cut is usually associated with a rapidly deteriorating economy," continue the analysts at Renta 4, and this seems to be one of the keys: a possible recession in the US. With Wall Street yet to open, market rumors even point to an emergency meeting within the Fed to contain the stock market hemorrhage.
Two of the largest US banks, Goldman Sachs and JP Morgan, have increased the likelihood of seeing a US economic downturn this year. Goldman raises the risk of a limited recession in the US in 2024 to 25%, while the bank led by Jamie Dimon believes that the Fed will make drastic cuts in official rates of up to 100 basis points in the next two months (September and October, 50 points each).
"Stocks are under strong pressure, and currencies used for carry trades continue to rise. Instead of an orderly adjustment of rates to some kind of neutral level, it seems that the Fed may be forced to make a more abrupt adjustment to its policy," warn ING Research in the same vein.
In this regard, Javier Molina from eToro emphasizes that "US two-year Treasury bond yields have fallen significantly, reflecting a strong market bet on future rate cuts, driven by signs of economic weakness and a shift in the Fed's language towards greater concern for employment."