U.S. Equities plunged on Monday, part of a wave of selling globally, as investors braced for days of volatility amid rising concerns over a slowing US economy and overheated gains in the technology sector.
The S&P 500 Index sank 3%, its biggest one-day drop since September 2022, and the tech-tracking Nasdaq 100 Index slid by a similar amount. Both benchmarks pared losses from earlier in the session after a report on the services industry was stronger than projected, easing worries about the economy.
Meanwhile, the VIX Index of stock-market volatility soared, at one point reaching the highest since early 2020. The day’s turbulence is an extension of last week’s losses, after a soft U.S. Jobs report fueled worries that the Federal Reserve isn’t moving fast enough to prevent a sharp economic downturn.
“There are so many people who were overly long risk and short volatility and the game now stopped,” said Matthew Rowe, head of cross asset strategies at Nomura Capital Management. “There’s still a lot of uncertainty ahead on many levels: monetary policy, geopolitical, the outcome of an election. And equities coming from a point of valuations that were historically very high.”
Megacap tech high-fliers bore the brunt of the losses, with the Bloomberg Magnificent 7 Index at one point plunging the most since 2015 amid a rout in names including Nvidia Corp. And Apple Inc., both of which trimmed losses on the day.
Concerns over the health of the U.S. Economy took center stage after data Friday showed rising unemployment levels in July, triggering a closely watched recession indicator.
“With the summer low liquidity, the still heavy trend plays that need unwinding and the VIX sky-high, this selloff move could go on for a few days,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. Still, “the macro picture itself is not as bad as the market seems to think.”
News that Warren Buffett’s Berkshire Hathaway slashed its stake in Apple by almost 50% in the second quarter also drove risk-off sentiment in the tech sector. Slow monetization of AI tools — a long-standing concern among tech investors — persists as the first preview of Apple Intelligence failed to live up to the hype.
The AI supply chain was dealt another blow amid reports that Nvidia’s highly anticipated Blackwell chips will be delayed due to design flaws. The chips may be postponed by three months or more, which could potentially hit big tech firms from Meta to Microsoft, the Information reported.
“When sentiment begins to sour, the falls become more extreme than perhaps they should be,” said Ben Barringer, an analyst at Quilter Cheviot. The next few weeks ares likely to be volatile for tech stocks, he said.
Turbulence in markets in Japan — where the central bank has started to raise interest rates as the Fed looks to cut — is also rippling across global markets in various asset classes. Investors are moving to reverse carry trades, in which they had borrowed at lower rates in Japan to fund purchases of higher-yielding assets elsewhere. Japan’s Topix stock index has slid 24% from a record high reached last month and the yen has soared.
“With yen carry trades now being unwound quickly, not only has the Japanese currency notably broken its depreciation trend against all major units, but risk assets that those trades were financed with are also being sold off,” Asymmetric Advisors strategist Amir Anvarzadeh wrote in a note to clients.
Sectors to Watch
- The shares of Apple’s suppliers slumped after Berkshire Hathaway nearly halved its stake in the iPhone maker. The decline came amid a broad market selloff Monday. Taipei-listed iPhone assembler Hon Hai Precision Industry Co. And chipmaker Taiwan Semiconductor Manufacturing Co. Slid.
- The largest US companies tumbled with Nvidia and Apple leading the Magnificent Seven cohort lower amid a broader rout.
- Shares in cryptocurrency-linked companies sank as Bitcoin added to a 13% drop last week that was the worst since the period when the FTX exchange imploded.
- Packaged foods stocks were in focus after reports that Mars was exploring an acquisition of Kellanova. TD Cowen analyst Robert Moskow writes that a merger of the two “could usher in another cycle of consolidation in the packaged foods space similar to 1999-2001, thus providing a boost to valuations.”
Markets at a Glance
- S&P 500 Index fell 3%
- Dow Jones Industrial Average fell 2.6%
- Nasdaq Composite Index fell 3.4%
- Nasdaq 100 Index fell 3%
- Russell 2000 Index fell 3.3%
- 10-year Treasury yield fell 1.7 basis points
- Cboe Volatility Index rose 13.80 points
- Bloomberg Dollar Index fell 0.3%
- West Texas Intermediate crude rose 0.3% to $74 a barrel
- Euro rose 0.4%
Here Are the Most Notable Movers
- Nvidia shares fall 6% following a report that the company’s upcoming artificial intelligence chips will be delayed due to design flaws.
- Apple sinks 4.8% after Berkshire Hathaway reported on Saturday that it had slashed its stake in the company by almost 50% as part of a massive second-quarter selling spree.
- Robinhood slides 8.2% as Bitcoin loses about a fifth of its value amid a global selloff.
- Kellanova rises 16% after Reuters reported Mars was exploring an acquisition of the snack maker, citing people familiar with the matter.
- Tyson shares rise 2.1% after the company reported adjusted earnings per share for the third quarter that beat the average analyst estimate.
Notes From the Sell-Side
- Moderna shares fall 3.3% after it was cut to sector perform from outperform at RBC Capital Markets, with the analyst noting that the downgrade reflects an “increasingly uncertain outlook.”
- Lockheed Martin shares close litle changed after RBC Capital Markets raised the recommendation on the defense contractor to outperform from sector perform. The broker noted that the upgrade reflects an “improving top-line outlook.”
- Vertex Pharmaceuticals was downgraded to equal-weight from overweight at Barclays with analyst Gena Wang citing valuation. Shares fall 3.6%.
- Five9 slips 1.5% amid a broader selloff even after receiving a double-upgrade to buy from underperform at BofA, removing the only negative analyst rating on the software company.
- Infinera shares fall 2% after Rosenblatt Securities downgraded the maker of digital optical telecommunications equipment to neutral from buy.
- Academy Sports & Outdoors slips after the retailer was downgraded to neutral from overweight at JPMorgan.
- Mobileye Global falls 4.9% after Daiwa Securities downgraded the automotive supplier to neutral from buy.
Related Market News
- Taking Stock: Just as stock markets were starting to celebrate signals from the Federal Reserve about a first rate cut, they were hit by a perfect storm: surprisingly weak economic data that’s brought back recession fears, underwhelming corporate earnings and poor seasonal trends.
- European Stocks: European stocks plunged, extending last week’s decline amid a deepening global rout in equities and a rotation away from the technology shares that have powered this year’s rally.
- Inside Asia: Most Asian currencies gained against the dollar, buoyed by rising dovish wagers for the Federal Reserve and falling Treasury yields. The ringgit outperformed amid improving momentum in foreign bond inflows.
This story was produced with the assistance of Bloomberg Automation.
