Why the stock market is freaking out again | CNN Business (2024)

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Fear has set in on Wall Street, and stocks are having another miserable day.

The Dow tumbled more than 1,000 points, and the broader market plunged 3% Monday. The Nasdaq, full of risky tech stocks, dropped 3.5%.

All of that comes amid a global market selloff. Japan’s Nikkei 225 index nosedived 12% — its worst rout in history. All major Asian and European markets fell substantially Monday.

Three fears are emerging all at the same time to send markets into a tailspin Monday: Growing worries about a recession, concern that the Federal Reserve has failed to act promptly enough and a belief that big bets on AI may not pay off.

Recession fears

The most prominent is fear that the US economy is in much worse shape than previously believed — evidenced by Friday’s unexpected jump in the unemployment rate.

Construction workers in San Francisco on May 7. David Paul Morris/Bloomberg/Getty Images Related article US economy added just 114,000 jobs last month and unemployment rose to 4.3%

On Friday, the Bureau of Labor Statistics reported that the US economy added just 114,000 jobs in July — far fewer than expected — and the unemployment rate jumped to 4.3%. Although that’s not in and of itself an unhealthy unemployment rate, its sudden march higher is alarming: Last year, the unemployment rate was at its lowest level since the moon landing.

To be clear: The US economy remains strong. Last quarter, it grew way more than expected, boosted by still-robust consumer spending, which makes up more than two-thirds of all gross domestic product.

But recession fears are mounting. Goldman Sachs economists Monday raised the odds of a recession to one in four in the next 12 months. That’s still a “limited” case, because the economic data looks strong overall and the Fed has plenty of room to reduce rates from a 23-year high.

But Goldman’s recession chances are still 10 percentage points higher than they were before Friday’s jobs report, which it called “more concerning now.”

Fed concerns

The stock market had hit record after record this year, buoyed by falling inflation and the growing sense that the Fed would shift from its series of aggressive rate hikes and start to rate cuts, which can boost corporate profits.

But the Fed didn’t cut rates as many had hoped last week. The market increasingly views the Fed’s patience as a mistake.

A man stands next to an electronic stock quotation board inside a building in Tokyo, Japan August 2, 2024. REUTERS/Issei Kato Issei Kato/Reuters Related live-story Global stock markets plunge

The Fed is notoriously horrible at timing its rate cuts and hikes. It was way behind the curve on inflation and had to catch up with multiple historic rate hikes in 2022 to tame runaway prices. Likewise, some economists believe the Fed should have started cutting rates sooner.

Rate cuts could help support the job market by cutting borrowing costs for businesses and freeing up money for companies to spend on hiring. But policy decisions take time to work their way into the economy. As inflation has cooled dramatically in recent months and the unemployment rate has risen, some fear the Fed may be too late to act before slow hiring turns into rampant layoffs.

The Fed’s next meetings are scheduled for September, November and December, Analysts at Citigroup and JPMorgan predict the Fed will slash rates by half a point at its next two meetings. But that may be too late, and it may be forced to make an emergency rate cut before then.

An emergency cut — which hasn’t happened since the early days of Covid, is exactly what the Fed needs to do, said famed Wharton professor emeritus of finance Jeremy Siegel on CNBC Monday morning.

“It’s so far behind the curve right now. I mean the Fed is up in the bleachers,” said Siegel. “You take a look at the data; it’s not at all comforting.”

AI worries

Stocks had also been flying high over the past two years because of big bets on tech companies involved in artificial intelligence: Many hoped that AI would create another global industrial revolution.

But AI profits are basically nonexistent, and the unproven technology isn’t yet ready for prime time. Some fear it’ll never get there. Traders are beginning to unwind big trades on Apple, Nvidia, Microsoft, Meta, Amazon, Alphabet and other tech stocks that had been surging since the beginning of last year.

Warren Buffett — CEO of Berkshire Hathaway and a notoriously calm force when markets go haywire — is also ditching tech. He just sold half of Berkshire’s Apple stake, which is a troubling sign for the health of the tech sector.

Because those companies are each worth close to $1 trillion or more and make up an enormous chunk of the overall value of the S&P 500, when investors sell off tech stocks, that has a massive detrimental effect on the broader market.

What happens next?

Investors are running for the hills. They’re selling off oil, crypto and especially tech stocks. Instead, they’re pouring into safe havens like bonds, sending Treasury yields lower.

That could spell trouble for some folks’ retirement accounts. But people who are close to retirement could actually benefit if they have a heavy mix of bonds, which are benefiting from the flight to safety.

Lower rates, if the Fed follows suit with cuts, could help lower punishingly high mortgage rates, car loan rates and other consumer loan costs. It could mean, however, that people with money stored in savings accounts could yield less interest in the coming months.

One thing not to do: panic. This is not a market crash. Not yet, anyway. Investors are nervous, but not panicked. Monday’s rout, if it ends at current levels, wouldn’t even crack the top 100 worst days in market history.

The only question now: How long will this fear last before investors sense a buying opportunity?

Why the stock market is freaking out again | CNN Business (2024)

FAQs

Why is the stock market doing so bad? ›

The Dow and the S&P 500 on Monday notched their worst daily percentage declines since 2022 after Friday's weak July jobs report spurred fears that the US economy is on unstable footing. The Dow cratered more than 1,000 points, the 15th instance ever it has done so.

Why is the market collapsing? ›

Factors That Contributed To The Recent Stock Market Dive

The downturn in the stock market can be attributed to a complex interplay of factors. Heightened geopolitical tensions and disappointing economic indicators from major global economies have fueled uncertainty and increased volatility.

What's causing the stock market to go down? ›

Per USA TODAY, some of the driving forces behind the drop include sharp declines in tech stocks including Nvidia, Apple and Amazon and a disappointing jobs report, which was released by the Labor Department on Friday.

Why is the Dow crashing? ›

Worries over the economy are front and center after a series of disappointing reports, including a weaker-than-expected jobs report on Friday. Big Tech stocks, which have led the market to record after record this year, bore the brunt of the selling.

Will stocks crash in 2024? ›

According to the latest InspereX Pulse Survey of 487 financial advisors, the majority (78%) of advisors are bullish about the S&P 500 and expect it will deliver more upside by the end of 2024.

At what age should I get out of stocks? ›

The 100-minus-your-age long-term savings rule is designed to guard against investment risk in retirement. If you're 60, you should only have 40% of your retirement portfolio in stocks, with the rest in bonds, money market accounts and cash.

Why is the market down suddenly? ›

Why is the market falling? The market might be falling due to a combination of factors such as economic downturns, geopolitical tensions, and shifts in investor sentiment. Economic indicators like rising inflation, increasing interest rates, or disappointing corporate earnings can trigger sell-offs.

What is the main cause of the market fall? ›

Key factors behind stock market crash: Sensex and Nifty faced sharp declines amid fears of a US recession, yen carry trade unwinding, geopolitical tensions, overvaluation, and lackluster Q1 results. Blue-chip stocks like Tata Motors and Tata Steel suffered the most.

Why is the market failing? ›

Markets fail under any of three conditions: production has increasing economies of scale; goods in the market are public; or production or consumption has externalities.

What goes up when stock markets go down? ›

Bonds usually go up in value when the stock market crashes, but not all the time. The bonds that do best in a market crash are government bonds such as U.S. Treasuries.

What will a recession do? ›

Recessions reduce opportunities: failed businesses, fewer jobs, and lower wages.

What is causing market sell-offs? ›

Friday's weak jobs report in the U.S. triggered the selloff, which then sparked a global rout on Monday. U.S. stocks plummeted, with the S&P 500 falling 3% and the Nasdaq Composite dropping 3.4%. Traders worry the Federal Reserve has waited too long to cut interest rates and that the U.S. economy is in recession.

What to do when the market is crashing? ›

Take a moment to assess your portfolio. And depending on your situation, perhaps it's time to put some new money in. Still, it's important to try to understand what's happening, and why. Because times like these, when stock markets around the globe fall sharply, are bound to come again.

What was the worst Dow drop ever? ›

Largest daily percentage losses
RankDateChange
%
11987-10-19−22.61
22020-03-16−12.93
31929-10-28−12.82
17 more rows

What happens if the stock market crashes? ›

Usually, when the stock market crashes, this can halt economic growth throughout the region. This means that the government may choose to reduce spending, companies may not have access to funding for expansion or operations, and investors may run into many losses on their open positions.

Why the stock market fall down? ›

Why is the market falling? The market might be falling due to a combination of factors such as economic downturns, geopolitical tensions, and shifts in investor sentiment. Economic indicators like rising inflation, increasing interest rates, or disappointing corporate earnings can trigger sell-offs.

Will the stock market get better? ›

The market sees a greater than 80% chance of at least five rate cuts from current levels by the end of 2024. Investor optimism about the economic outlook has improved dramatically from a year ago, but there's still a risk that Fed policy tightening could tip the economy into a recession in 2024.

Why am I failing in stock market? ›

Poor Risk Management

Traders who fail to set and adhere to stop-loss orders or those who over-leverage their positions can suffer significant losses when the market moves against them. Using stop-loss orders can assist investors in controlling emotions and preventing hasty decisions driven by fear or greed.

Why do 90% of people lose money in the stock market? ›

Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.

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