Stocks are tanking on Monday, continuing losses from the past several trading sessions as fears about a weakening economy have gripped markets.
The Nasdaq Composite (^IXIC) dropped 4%, while the S&P 500 fell about 3% and the Dow Jones Industrial Average (^DJI) shed more than 2%, or about 1,000 points in early trading.
The 10-year Treasury (^TNX) yield fell another 10 basis points to hover near 3.69%, and is now down about 60 basis points in less than two weeks. Volatility has spiked, too, The CBOE Volatility Index, known by its ticker as simply the VIX (^VIX) shot up above 60 for the first time since 2020.
The latest leg of the sell-off accelerated overnight as Japan’s Nikkei 225 (^N225) dropped more than 12% in its biggest-ever daily loss after a surprise interest rate hike from the Bank of Japan. Yardeni Research president Ed Yardeni told Yahoo Finance he thinks the “large extent” of the selloff in US stocks is attributable to the moves in Japan.
Yardeni explained that an unwinding of the so-called “carry trade” spawned from speculators borrowing in Japan at 0% interest rates and then taking that money and investing in areas of the market like the Magnificent Seven tech stocks.
“Now, with the central bank tightening while other central banks are easing, the yen suddenly had a big move to the upside and that strength, really led to a lot of margin calls of these speculative positions,” Yardeni said. “That’s all coming unglued. And I think it’s a lot of margin calls, and I think it’s going to happen pretty quick, and the unwind should be over by the end of the week.”
The sell-off in US stocks also came as investors also adjusted their expectations for domestic monetary policy.
A weaker-than-expected July jobs report, which revealed a widely accurate recession indicator tied to a rise in the unemployment rate had triggered, exacerbated fears that Fed policy may be too restrictive.
Subsequently, markets have quickly shifted to price in higher chances of more rate cuts this year. As of Monday morning, markets are pricing in a roughly 95% chance of a 50 basis point…
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