Stocks Take a Nosedive Amid Recession Fears

Stocks took a scary plunge on Monday after last week’s drop sent the Nasdaq Composite into correction territory. The technology sector was once again the leading cause of concern.

After a weak jobs report on Friday raised alarms about a potential recession in the U.S., chaos erupted on global markets. In Tokyo, the Nikkei 225 saw a staggering drop of 12.4%—the most significant one-day percentage drop since the infamous crash of Black Monday in October 1987. The yen even strengthened by up to 3% against the dollar, making traders uneasy.

The selloff didn’t stop in Asia; Europe also felt the heat. The Stoxx Europe 600 index was on track for its worst day since 2022. Traders are worried that the Federal Reserve has waited too long to cut interest rates, which has driven many to seek safety in U.S. government debt.

Wall Street is suddenly having a change of heart about the economy, causing pain for nearly all S&P 500 stocks. With the S&P 500 down by 2.7%, about 480 of its members were expected to fall today. All 11 sectors of the S&P 500 were down by at least 1%, marking the first time since November 2, 2022, that every sector closed with such a loss.

The Dow was down by 909 points, or 2.3%, while the Nasdaq Composite fell by 2.8%. After entering correction territory last week, the S&P 500 was teetering just above the level that denotes a 10% drop from its recent high.

David Donabedian, the chief investment officer at CIBC Private Wealth US, remarked, “Corrections happen,” noting how unpredictable they can be. He still believes that the market will stabilize once the inflation crisis eases and the Federal Reserve becomes more accommodating.

Donabedian further explained that a slowing economy could hinder the earnings growth that analysts expected in the upcoming quarters. However, he also pointed out that the recent market pullback and rising volatility seem to be an overreaction.

He added that the S&P 500 typically sees one and a half 10% drawdowns each year. With traders recently ignoring signs of an economic slowdown, it’s not surprising that they’re rethinking how they allocate their investments. “This reaction in equity and fixed income markets is probably an overreaction, but somewhat guided by the fact that we were at lofty valuations for key parts of the market,” Donabedian said, explaining that these areas are taking the hardest hits now.