US Markets Down and Economic Concerns
At the close, the Dow Jones index lost more than 1,000 points, falling 2.60 percent to 38,703.27 points. The S&P 500 index fell 3 percent to 5,186.33 points and the Nasdaq index fell 3.38 percent to 16,208.38 points. The Dow and S&P 500 indexes suffered their biggest daily losses since September 2022.
Following the economic data released last week in the US, a negative trend was observed in stock markets due to concerns that economic activity could slow down more sharply than expected. The US Federal Reserve (Fed) kept the policy rate steady at its last meeting and signaled a rate cut for its September meeting. However, recession concerns increased due to the weak data, and this led to a significant increase in risk perception.
The Purchasing Managers Index (PMI) for the services sector, released today, provided some relief by indicating expansion in the sector in July. The services sector PMI announced by the Institute for Supply Management (ISM) in the US increased by 2.6 points on a monthly basis in July to 51.4, achieving a result in line with market expectations.
With the rise in recession concerns following the weak economic data in the US, the probability that the Fed will cut its policy rate by 50 basis points in September has exceeded 90% in pricing in money markets during the day. Analysts are concerned that the Fed is late in starting to cut interest rates. While the sharp declines in global markets have brought the possibility of an emergency rate cut from the Fed to the agenda, it is stated that such a situation could further increase panic in the markets.
In light of these developments, Fed officials’ statements are being closely monitored. Chicago Fed President Austan Goolsbee said in an interview today that it does not make sense to continue a restrictive policy stance if the economy is weakening. Goolsbee said, “The employment figures were weaker than expected, but it does not yet resemble a recession.” Refraining from commenting on whether the Fed will hold an emergency meeting to cut interest rates, Goolsbee said, “This is a very big table, so interest rate increases and decreases are always on the table.” Goolsbee emphasized that the Fed will intervene if there is a deterioration in the economy.
While demand for safe haven assets increased due to recession concerns, the 10-year bond yield in the US saw its lowest level since June 2023 at 3.66 percent. However, following statements by Chicago Fed President Goolsbee and data indicating growth in the service sector, the bond yield recovered somewhat. The US 10-year bond yield settled at 3.78 percent at market close. The US 2-year bond yield, which fell to 3.66 percent during the day, reached 3.89 percent at the close.
The dollar index, which saw its lowest level in nearly 7 months, decreased by 0.48 percent to 102.49. The euro/dollar parity increased by 0.44 percent to 1.095. The dollar/yen parity decreased by 1.72 percent to 144.05. The VIX Index, known as the “fear index” and showing the fluctuations in the S&P 500 Index in the US, fell to 38.57 after reaching a 4-year peak of 65.70.
The decline in technology stocks was notable on the first trading day of the week. Nvidia, one of the companies that stood out in the artificial intelligence rally in the markets, lost 6.36 percent of its value. Apple, one of the US technology giants, lost 4.82 percent after Berkshire Hathaway, whose CEO is Warren Buffett, halved its stake in the company. Of the other major technology companies, Microsoft’s shares fell 3.27 percent, Meta’s shares fell 2.54 percent, Alphabet’s shares fell 4.61 percent and Amazon’s shares fell 4.10 percent. In addition, US electric car manufacturer Tesla’s shares lost 4.23 percent.
Banking stocks also fell on recession fears. Citigroup’s shares fell 3.42 percent, Wells Fargo’s 2.14 percent, JPMorgan Chase’s 2.13 percent and Morgan Stanley’s 3.94 percent.
