This morning the tech-heavy Nasdaq futures are leading the plunge, nosediving a staggering 4.65%, while the Dow Jones Industrial Average and S&P 500 futures aren’t far behind, tumbling 2.10% and 3.11% respectively. This widespread sell-off has spared no sector, with even traditional safe-haven assets taking a hit. Gold prices have dipped 1.67%, while silver has plummeted nearly 5%, shocking investors who often turn to precious metals during market turmoil. The energy sector is also feeling the pain, with crude oil prices sliding almost 2%.
The Nikkei 225, Japan’s benchmark stock index, is experiencing a dramatic and historic plunge. This morning, the Nikkei index fell by an astonishing 12.4%, or 4,451.28 points, closing at 31,458.42. This sharp decline follows a 5.8% drop on Friday, resulting in the worst two-day decline ever recorded for the index, with a total fall of 18.2% over these two trading sessions.
This severe market downturn has erased all of the Nikkei’s gains for the year, reversing a previous rally that had seen the index reach a 34-year high earlier in 2024. The magnitude of this crash is particularly significant, as it represents the Nikkei’s worst single-day performance since 1987.
Last week S&P 500 and Dow Jones both slipped 2.1% (nearly touching support), while the Nasdaq Composite tumbled 3.4%. But the real showstopper? The Russell 2000 plummeted 6.7%, doing a complete 180 from its recent hot streak.
So, what sparked this financial fire sale? It all kicked off with the Fed’s decision to keep interest rates steady at 5.25-5.50%. No surprises there – about as shocking as finding out water is wet. But then Thursday rolled around, and that’s when things got spicy.
Weekly jobless claims jumped to 249,000, higher than expected. As someone who’s been in this game for over two decades, I always keep my ear to the ground on this number. It’s like the canary in the coal mine for our economy.
Then came the ISM Manufacturing Index, dropping to 46.8% in July. For those keeping score at home, that’s deeper into contraction territory. And Friday’s jobs report? Let’s just say it was about as appetizing as week-old sushi.
In a week of dramatic market movements, U.S. Treasury yields experienced significant declines, reflecting growing concerns about the state of the economy and potential shifts in Federal Reserve policy.
The benchmark 10-year Treasury yield fell 4 basis points to 4.20%, approaching its lowest levels of the year. Some market observers reported an even more substantial decline, with yields dropping nearly half a percentage point over the course of the week.
Meanwhile, the 2-year Treasury yield, which is particularly sensitive to Federal Reserve policy expectations, saw an even more pronounced drop. It ended the week at its lowest level since March, a clear indication that investors are reassessing their outlook on interest rates and economic growth.
All this data paints a picture of an economy that might be running out of steam faster than I run out of coffee on Monday mornings. And here’s a nugget of wisdom for you: While the S&P 500 has historically returned about 10% annually since 1926, weeks like this remind us that the road to those returns is bumpier than a New York City pothole.
Fed Rate Watch Tool Predicts 93% Change of Rate Drop
The Federal Reserve’s next policy meeting, scheduled for September 17-18, 2024, is drawing significant attention from market participants and economists alike. Currently, the federal funds rate stands at 5.25%-5.50%, a level maintained since July 31, 2024.
According to the CME FedWatch Tool, which analyzes 30-Day Federal Funds futures prices, traders are increasingly confident about potential rate cuts in the near future. The tool indicates a 93.3% probability of a quarter percentage point reduction in the Fed’s target range by September, potentially lowering it to 5.00%-5.25%.
This shift in market expectations is largely driven by recent economic data, particularly the cooling inflation figures. The consumer price index for June showed a 0.1% decline month-over-month, bringing the annual inflation rate down to 3%, its lowest level in three years. This trend has bolstered confidence that the Fed is making progress towards its 2% inflation target.
Federal Reserve Chair Jerome Powell has also hinted at the possibility of rate cuts, stating that the Fed would not necessarily wait for inflation to reach the 2% target before considering reductions. Powell emphasized the importance of gaining “greater confidence” in inflation’s trajectory towards the target.
While the Fed’s own projections from earlier this year suggested the federal funds rate might fall to 5.1% by the end of 2024 and 3.9% by the end of 2025, market expectations are now pointing towards potentially earlier and more aggressive cuts.
US Market Highlights
• The ‘Sahm Rule’ has been triggered, folks. This economic indicator has a track record that would make Nostradamus jealous – it’s accurately predicted every U.S. recession since 1970.
• The market is betting on future rate cuts like a gambler at a Vegas roulette table. The CME FedWatch tool is now predicting over 75 basis points of cuts by the end of 2024.
• Warren Buffett made waves by selling half of Berkshire Hathaway’s stake in Apple. It’s like watching your favorite band break up – you know it’s probably for the best, but it still hurts.
• Intel announced plans to trim 15% of its workforce. As someone who’s weathered many tech storms, this caught my attention like a lightning bolt in a clear sky.
• On a brighter note, U.S. pending home sales surged in June. It seems improved supply and slightly lower mortgage rates are bringing buyers back to the market like bees to honey.
Global Highlights
• Across the pond, the Bank of England cut interest rates for the first time in over four years. The decision wasn’t unanimous – seems even central bankers can’t agree on where to go for lunch.
• Meanwhile, the Bank of Japan is zigging while others zag, raising its benchmark interest rate to the highest level since October 2008. It’s a reminder that in the global economy, everyone’s dancing to their own tune
.• The EU economy showed some resilience, growing 0.3% in Q2 despite Germany’s economic engine sputtering. It’s like watching a car race where some vehicles are cruising while others are stalling at the starting line.
• Over in China, economic indicators are flashing warning signs like a Christmas tree. Chinese leaders have pledged to take more aggressive steps to boost consumer spending. I’ll be watching this situation like a hawk eyeing its prey.
• In tech policy news, the U.S. plans to exclude certain allies from chip export restrictions. This sent shares of ASML soaring like a SpaceX rocket. However, chip exports from several countries will still face restrictions. It’s a high-stakes game of technological chess, and I’m fascinated to see how it unfolds.
Commodities & Crypto Corner
In the oil patch, crude prices continued their downward slide for the fourth straight week. Despite a brief spike due to Middle East tensions, the focus remains on demand worries and global economic slowdown. Brent crude is hovering around $79.70, while WTI is at $76.60 a barrel.
Gold, on the other hand, is shining brighter than a diamond in a coal mine, trading near its all-time high at around $2462. In my years of trading, I’ve seen gold play this safe-haven role many times – it’s like the financial world’s security blanket.
The crypto market had a week rougher than a cat in a washing machine. Bitcoin dropped over 5%, trading around $64,800. Ethereum is down 3.56% at $3,150, now more than 50% below its all-time high. As someone who’s watched the crypto market evolve, I can tell you that this kind of volatility is as common as bad weather in London.
Calendar – The Week Ahead
Looking ahead, we’ve got a week busier than a one-armed paperhanger. Here’s what’s on my radar:
• Monday: U.S. services sector data and the Fed’s Senior Loan Officer Opinion Survey
• Thursday: Initial jobless claims update
We’re also knee-deep in earnings season. Some key reports to watch:
• Monday: CSX, Williams Companies, Tyson Foods
• Tuesday: Amgen, Caterpillar, Uber, Airbnb
• Wednesday: Disney, CVS Health, Shopify
• Thursday: Eli Lilly, Gilead Sciences, Expedia
• Friday: AMC Networks, American Axle
As we navigate these choppy waters, remember: market volatility is as normal as coffee in the morning for us traders. It’s how we respond to it that separates the wheat from the chaff. Stay informed, stay diversified, and most importantly, keep your sense of humor. After all, laughter might just be the best hedge against market uncertainty. Until next week, this is Irving Wilkinson, signing off and heading to my favorite watering hole for a well-deserved martini.
