Dow Sinks More than 1,000 Points in Global Market Selloff

Analysts said the stock rout is a reaction to worrisome economic data last week, which sent the Nasdaq into correction territory.

By Aaron Gregg, Taylor Telford, Andrew Jeong and Niha Masih

Updated August 5, 2024 at 4:06 p.m. EDT

Global markets slid Monday as fears of a slowing U.S. economy sparked investor angst, resulting in some of the most intense volatility Wall Street has seen in years.

Investors were rattled by a trickle of disappointing economic data last week, including a weaker-than-expected jobs report. The Dow Jones Industrial Average shed nearly 1,034 points, or 2.6 percent, and closed at 38,703.27. The broader S&P 500 lost 3.0 percent, while the tech-heavy Nasdaq composite index lost 3.4 percent as wariness around artificial intelligence led investors to turn away from big names such as Nvidia and Microsoft.

The Wall Street turbulence followed unease in overseas trading that sent Japan’s benchmark Nikkei 225 index to its biggest single-day drop on record. Cryptocurrencies also plunged, with bitcoin moving 8 percent lower as of late Monday afternoon.

Analysts said the volatility is a reaction to a softening employment picture and concerns that the Federal Reserve missed a crucial window by holding out on rate cuts until at least September. On Friday, the Labor Department reported that only 114,000 jobs were added in July, pushing the unemployment rate to 4.3 percent, the highest mark since 2021. Stocks fell sharply, sending the Nasdaq into correction territory. A day earlier, the number of Americans filing for first-time jobless claims — a widely followed proxy for layoffs — jumped more than expected while a key measure of manufacturing activity signaled contraction.

Adding to the volatility is a spate of bad financial results from the tech sector and currency gyrations abroad. Even with the recent losses, the major U.S. indexes remain in positive territory for the year, with the Dow up 2.6 percent, the S&P 500 ahead 8.7 percent and the Nasdaq up 7.9 percent.

“We’ve got a threefold fear — manufacturing data that was poor, labor market data that was weaker than expected, and a Fed that seemingly won’t be here to help us until September, which feels like an eternity away,” said Liz Young Thomas, head of investment strategy at SoFi.

Monday’s declines started in Asia, where rising interest rates also have spooked investors. The Nikkei plummeted 12.4 percent, or more than 4,451 points, to 31,458.42. The index has slid by more than 20 percent since last month, after reaching all-time highs over 42,000 in July.

“We will watch the market trends with a sense of urgency and take all possible measures to manage the economy and finances,” Yoshimasa Hayashi, Japan’s chief cabinet secretary, said during his regular news conference Monday.

Grim numbers were reported across the region: South Korea’s Kospi index dropped by 8.77 percent; Taiwan’s Taiex by 8.35 percent; Hong Kong’s Hang Seng Index was down by 1.46 percent; and China’s Shanghai Composite stock market index by 1.54 percent. Australia’s S&P/ASX 200 slid by 3.7 percent.

European markets followed suit: London’s FTSE 100 dropped more than 2 percent, hitting its lowest mark in more than three months, and shares of European tech and semiconductor stocks also plunged.

Over the weekend, economists at Goldman Sachs flagged an increased risk of recession in a report to their clients, raising the likelihood of a downturn in the next 12 months to 25 percent from 15 percent.

One point of concern is the slow-moving Federal Reserve, analysts said. The U.S. central bank has substantially increased interest rates over the past two years to get inflation under control, raising concerns that it could hamper the economy. It held rates steady during its most recent meeting, though a rate cut is on the table for September.

“The fear is coming from the weak jobs numbers that indicate recession, and that the Fed stayed too high for too long,” said Michael Farr of the D.C.-based investment firm Farr, Miller and Washington.

Still, Farr believes Monday’s sell-off could be an overreaction to a few weak economic data points. “I understand that the labor market has been normalizing, but this is feeling like too much shock and awe,” Farr said.

There were other worrying economic signs. The two-year Treasury yield rose to 3.746, nearly reaching the 10-year yield at 3.678, according to MarketWatch. An “inverted” yield curve, in which short-term yields are higher than long-term yields, is a widely followed recession indicator.

“At the beginning of the year, market sentiment was overly optimistic, with some banks prematurely calling for rate cuts. Now, we’ve swung to what may shape up to be excessive pessimism,” Ken Tjonasam, a portfolio strategist with Global X, said Monday in comments emailed to The Washington Post.

Several leading tech stocks, whose valuations soared earlier in the year amid hype around artificial intelligence technology, were posted steep losses Monday.

Concerns about whether the surge of interest and investment in AI will deliver revenue growth for big tech companies and start-ups have been troubling investors. Last week, as several companies reported earnings, investors seemed to want more clarity on the kinds of returns they could expect from investment after spending the last year driving AI-related shares up.

The moves away from big names continued Monday. Chipmaker Nvidia slid 6.4 percent, leaving it more than 20 percent off its recent high just weeks ago. Microsoft fell 3.3 percent and Tesla shed 4.2 percent.

Alphabet shares closed down 4.6 percent as investors reacted to a federal court ruling that found that its Google unit violated antitrust law by abusing its market power to quash competition in internet search, handing the Justice Department a landmark victory against Big Tech.

Apple’s stock slid 4.8 percent as investors reacted to news that Warren Buffett’s Berkshire Hathaway had given up a substantial portion of its stake in the company.

Frenzied trading Monday was made more chaotic by outages affecting online brokerages such as Charles Schwab, Fidelity and Vanguard, which left thousands of investors struggling to access their accounts, according to Downdetector.

Julia Mio Inuma and Gerrit De Vynck contributed to this report.