Fear factor sets in as Dow, Nasdaq hit panic button, Indian markets in tense huddle

Global markets plummeted as fears of a slowing U.S. economy sparked investor panic, leading to one of the most volatile trading days on Wall Street in years. 

The Dow Jones Industrial Average plunged nearly 900 points, or 2.2%, while the S&P 500 fell 2.5%, and the Nasdaq dropped 2.9%. This turmoil extended to global markets, with Japan’s Nikkei 225 suffering its largest single-day drop on record and cryptocurrencies like Bitcoin falling 7.4%.

Analysts attribute the sell-off to worrisome economic data that pushed the Nasdaq into correction territory and disappointing financial results from the tech sector. Despite the recent losses, the three major U.S. indexes remain positive for the year. Liz Young Thomas, head of investment strategy at SoFi, said, “We’ve got a threefold fear — poor manufacturing data, weaker-than-expected labor market data, and a Fed that seems out of reach until September, which feels like an eternity away.”

The panic began in Asia, where rising interest rates alarmed investors. The Nikkei dropped 12.4%, or over 4,451 points, to 31,458.42, having fallen more than 20% since last month. “We will watch market trends with urgency and take all possible measures to manage the economy and finances,” stated Yoshimasa Hayashi, Japan’s chief cabinet secretary.

In India, markets mirrored the global meltdown. The BSE Midcap index lost 3.6% while the BSE SmallCap fell 4.21%, and the Sensex dropped 2.74%. Both broader indices saw their steepest single-day decline since June 4. Despite strong gains over the past year, mid-cap and small-cap indices are now trading at expensive valuations, with potential signs of a reversal.

Adding to the pressure, a report from Elara Capital highlighted a reversal in small-cap flows as a percentage of free float market capitalization, suggesting momentum is weakening. More than $1.93 trillion was wiped out from the U.S. stock market, with the Nasdaq alone dropping over 1,000 points. Weak jobs data released on Friday further fueled recession fears, with the U.S. economy adding just 114,000 jobs in July and the jobless rate rising to 4.3%.

Worldwide, equities plummeted amid economic concerns. Japan’s Nikkei 225 saw its worst day since the 1987 Black Monday crash, South Korea’s Kospi fell 8.8%, and European stocks sank roughly 3%. Bitcoin also took a hit, dropping 12%, while the Russell 2000 index of small companies fell 5.5%.

Big Tech stocks were not spared. Shares of Alphabet, Netflix, and Meta declined between 2.5% and 4%, while Nvidia plunged over 8% due to delays in launching its new AI chips. Apple stock fell 4.6% following Warren Buffett’s Berkshire Hathaway reducing its stake in the company.

In the bond market, Treasury yields fell as investors sought safe-haven assets. The yield on the 2-year Treasury dropped to 3.81% from 3.88% late on Friday. Gold prices also fell more than 2% amid the global market rout, with spot gold down 2.2% at $2,389.79 an ounce and US gold futures losing 1.6% to $2,430.00.

Crude oil extended its losses to a new seven-month low, with Brent futures slipping below $76 a barrel and West Texas Intermediate dropping to just above $72. The confluence of these economic factors has created a perfect storm, leaving investors wary and markets reeling.