Introduction
The stock market is a slippery landscape. And during economic disasters such as recession, it becomes more volatile. The recent US stock market crash and US recession have turned the global economy upside down. Concerns and questions have been rising in the minds of investors.
We’ll try to give all the answers in this blog. But first, let’s see what actually happened.
What Happened?
Today, 5th August 2024, the Indian stock market witnessed a downturn with Sensex and Nifty falling sharply to the ground. Sensex dropped to an intraday low of 78,295 points, down 2,686 points. Moreover, the Nifty also fell 823 points coming down to 23,893.
Broader indices were under great selling pressure as the MidCap index slipped by 4.23%, and the SmallCap index was down by 4.58% in intraday deals.
The US stock market is also severely affected. The tech giant Nasdaq and the S&P 500 lost 3.2% in two trading days. Responding to this, the US Federation Reserve held the interest rates. This further contributed to the sell-offs.
Asia-Pacific was also not left aloof. It faced a downturn as Nikkei 225 and Topix in Japan tumbled up to 13%. Besides South Korea’s Kospi, Hong Kong’s Hang Seng and Australia’s ASX 200 also experienced declines of 3% to 11%. This was one of the worst dips since the unforgettable 1987 “Black Monday.”
All About US Recession And US Stock Market News
As U.S. stock index futures fell sharply on Monday, with Nasdaq-linked futures dropping nearly 4%, the concern spread across the international market. Investors suspect that the U.S. Federal Reserve will lower the interest rate to stimulate growth. This affected the Asian-Pacific and European stock markets, and the bond yields fell sharply.
Even the premarket trading experienced the thunder of fall as mega-cap and growth stocks declined, which was driven to all-time high indexes earlier.
Apple Inc. fell to 7.3% after Berkshire Hathaway reduced its stake in the company by nearly 50%. This may affect the US economy widely.
Nvidia Fell 6.8% along with a report that its upcoming AI chip launch will be delayed. Moreover, based on the data, traders assigned a 91.5% probability that the U.S. central bank would reduce the benchmark rates by 50 basis points in the September meeting.
According to CME’s FedWatch Tool, the Year-to-year-end interest rates are expected between 4% and 4.25%. This will be a downturn from the current range of 5.25% to 5.50%.
Key Stock Movements
Because of all this many major stocks on the BSE Sensex showed sharp declines.
- Adani Ports, Tata Motors, Tata Steel, SBI, Infosys, JSW Steel: Fell in the range of 5-6%.
- Reliance Industries, ICICI Bank, Larsen & Toubro, HDFC Bank: Slipped in the range of 2-4%.
- India VIX: Shot up to 50.40% intraday, indicating increased market volatility.
Factors Causing The Stock Market Crash
1. Concerns About U.S. Economic Data:
Recent disappointing US stock market recession and economic data has raised doubts about the Federal Reserve’s ability to achieve a soft landing for the world’s largest economy. There is growing uncertainty about whether more aggressive rate cuts might be necessary to prevent an economic slowdown.
2. Global Market Sell-Off:
The global sell-off has been intensified by a combination of factors such as rising tensions in the Middle East, concerns over tech earnings, Poor U.S. economic data, including a decline in job creation in July, and a sharp rise in the unemployment rate to 4.3%.
3. Japan’s Stock Market Crash:
The crash in Japan’s stock market has led to the relaxing of the Yen carry trade, which is causing significant challenges for the Japanese market. The fear of a reverse Yen carry trade, following an interest rate hike in Japan, was the initial catalyst for market turmoil.
The Head of Research, Swastika Investmart Ltd, Santosh Meena said that the global market is experiencing a downturn due to a mix of negative factors, including poor U.S. job data and recession fears in the U.S. – China and Europe are already dealing with economic slowdowns, adding further pressure on global markets. Moreover, geopolitical tensions are adding to the market fears.
Technical Analysis
A closer look at the technical aspects of the US stock market can provide further insights into potential future movements.
Nifty Support Levels
- Budget Day Low: 24,075
- 50-DMA: Around 23,900
- Major Support: 23,300 level
- Resistance: Expected in the 24,800-25,000 range
Economic Concerns
Various economic factors are contributing to the current market conditions, adding to investor anxiety.
End of Japan’s Carry Trade
- Central banks’ tightening monetary policies are causing concerns.
- Rising borrowing costs are shifting investments away from riskier assets.
Global Challenges
- Fear of a reverse Yen carry trade.
- Recession fears in the USA, poor job data, slowdowns in China and Europe.
- Geopolitical tensions in the Middle East.
Conclusion
The US stock market crash and the ongoing US recession present significant challenges for investors. Signs of the first meaningful correction in global markets are emerging after a prolonged bull run. We suggest that investors and traders be cautious and avoid making unthought-out investment decisions. Despite the current volatility, the long-term outlook for the markets seems to be bullish. Investors to keep a close eye on the market and wait for green lines on the graph for making purchase.
Read Also: Investing in the Long-Term Stock Market: 10 Steps to Follow
