LONDON — U.S. stocks were on course for their worst opening of the post-pandemic era Monday as Wall Street continued to react to worse-than-expected jobs data as well as a massive over-night sell off in Japanese markets.
In pre-market futures trading, the Dow Jones Industrial Average dropped as much as 1,000 points or 3%, the S&P 500 was down 3.4% and the tech-heavy Nasdaq was set to slide by 5% at the open.
That’s mild compared to the pounding Japanese stocks received overnight. One of the country’s main stock indices fell 12.2%, among the worst days since 1987’s “Black Monday” — the sudden and unexpected global stock market crash that raised fears of a depression.
While the rout in Japan was driven in part by the U.S. jobs data, traders added fuel by winding down so-called “carry” trades that had seen them borrowing at previously lower interest rates offered for yen to buy assets more cheaply.
But a rise in the value of the Japanese yen against the U.S. dollar — making Japanese assets more expensive for holders of other currencies — has suddenly made the carry trade less profitable.
Monday’s looming decline in U.S. markets would represent the third-straight trading day of significant draw-downs. While Friday’s jobs report, which showed the U.S. unemployment rate unexpectedly climbing to 4.3%, caught Wall Street off guard, it also reacted to a weaker outlook from Amazon as well as the growing belief that much of the recent run-up in tech stocks, which pushed the Nasdaq to a record high just a month ago, has been overdone.
That idea was formed in response to recent signals from major tech companies that the pay-off for artificial intelligence investments was still a long way off.
Among the companies seeing major declines in their share prices early Monday:
- Nvidia, which has been at the center of the tech-stock run-up thanks to its unique graphics card computer chips, was set to open Monday 14% lower.
- Apple, -9% in Monday futures trading. Over the weekend, Warren Buffett’s Berkshire Hathaway group revealed it had sold nearly half its stake in the tech giant.
- Amazon, -8%, and Microsoft, -5%, in Monday trading.
Cryptocurrencies including bitcoin and ethereum also saw sizable price declines. Bitcoin fell nearly 14% to about $50,000, its lowest level since this spring, while ethereum dropped 17% to about $2,200, effectively erasing its gains for the year.
“The U.S. is the locomotive of the global economic train and increasing concern about a slowdown, or possible recession, has markets around the world in turmoil,” Bankrate.com Chief Financial Analyst Greg McBride said in a note Monday. “While Friday’s employment report was disappointing, it wasn’t the only worrisome economic indicator, only the latest. Couple economic concerns with the cacophony of earnings disappointments and weak corporate outlooks, global unrest, and currency gyrations, and you have the recipe for sudden volatility.”
Over-riding it all now are concerns the Federal Reserve has been too cautious over cutting interest rates — doing so makes money easier to borrow and move more freely — and will now need to catch up with other global central banks, which have moved first.
In an interview on CNBC Monday, Jeremy Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School of Business, told “Squawk Box” that last week’s unemployment figure “blew through” the central bank’s target unemployment rate of 4.2%. Meanwhile, inflation has largely been tamed, he said.
“How much have we moved the fed funds rate? Zero,” said Siegel, now chief economist at Wisdom Tree Investments financial group. “That makes absolutely no sense whatsoever.”
Siegel even raised the prospect of an emergency rate cut — something the Fed has only ever done during global crises like the Covid-19 pandemic — though other commentators dismissed that is unlikely.
The upshot is that investors are increasingly putting their money into U.S. Treasury bonds — deemed ‘haven’ assets that act as stores of wealth in volatile moments.
The yield on the 10-year note hit 3.683%, its lowest level since June 2023. While that’s a signal that recession fears are increasing, it could also bring relief to the housing market, since mortgage rates track the 10-year yield.
Arata Yamamoto contributed.
