Dow Jones drops 1,000 points, Japanese stocks plunge, global markets tremble

New York — A frightening Monday that began with an overseas plunge reminiscent of the 1987 crash swept the globe and hit Wall Street with new steep losses as fears of a slowing U.S. economy deepened. The S&P 500 fell 3%, its worst day in nearly two years. The Dow Jones Industrial Average lost 1,033 points, or 2.6%, while the Nasdaq Composite slid 3.4% as Apple, Nvidia and other big tech companies that were once the stock market’s stars continued to falter. The declines were the latest in a series of global selloffs that began last week. Japan’s Nikkei 225 helped kick off Monday’s session by plunging 12.4% for its worst day since the Black Monday crash of 1987. It was the first chance for Tokyo traders to react to Friday’s report showing that U.S. employers slowed hiring last month by more than economists had expected. It was the latest weaker-than-expected data on the U.S. economy, and it all raised concerns that the Federal Reserve has been slamming the brakes on the U.S. economy for too long by raising interest rates in hopes of stifling inflation. Professional investors have warned that some technical factors could amplify the market action and that the declines may be overdone, but the losses were still steep. South Korea’s Kospi index fell 8.8% and bitcoin fell from above $61,000 to below $54,000 on Friday. Even gold, which has a reputation for offering safety in turbulent times, slipped about 1%. That’s partly because traders have begun to wonder whether the damage has been so severe that the Federal Reserve will have to cut interest rates in an emergency meeting before its next scheduled decision on Sept. 18. The two-year Treasury yield, which closely tracks the Fed’s expectations, briefly fell below 3.70% in the morning, down from 3.88% late Friday and 5% in April. It has since recovered to 3.89%. “The Fed could come riding in to save the day with a big rate cut, but the case for cutting between meetings seems tenuous,” said Brian Jacobsen, chief economist at Annex Wealth Management. “These measures are typically reserved for emergencies, like COVID, and a 4.3% unemployment rate doesn’t seem like much of an emergency.” » Sure, the U.S. economy is still growing, the U.S. stock market is still up healthily for the year, and a recession is far from a certainty. The Fed has made clear that it is walking a tightrope since it began raising interest rates in March 2022: Too aggressive a policy would stifle the economy, but too loose a policy would give inflation more oxygen and hurt everyone. Goldman Sachs economist David Mericle says the probability of a recession in the next 12 months is higher after Friday’s jobs report. But he still sees only a 25% chance, up from 15%, in part “because the data looks good overall” and he doesn’t “see major financial imbalances.” Some of Wall Street’s recent declines may simply be the result of a stock market that has hit dozens of all-time highs this year, driven in part by a frenzy over artificial intelligence technology. “Markets tend to go up like they’re going up stairs, and they go down like they’re falling out a window,” said JJ Kinahan, CEO of IG North America. He attributes much of the recent concern to fading AI hype, increasing pressure on companies to show how AI translates into profits, and “a market that was ahead of itself.” Treasury yields also pared losses Monday after a report said growth in U.S. services companies was a bit stronger than expected. Growth was led by companies in the arts, entertainment and recreation sector, as well as accommodation and food services, according to the Institute for Supply Management. Still, stocks of companies whose profits are most closely tied to the strength of the economy suffered sharp losses on fears of a slowdown. Smaller companies in the Russell 2000 index fell 3.3%, erasing what had been a revival for them and other struggling sectors of the market. Compounding the plight on Wall Street, Big Tech stocks tumbled as the market’s hottest stock for much of this year continued to slump. Apple, Nvidia and a handful of other tech stocks known as the “Magnificent Seven” have propelled the S&P 500 to record after record this year, even as high interest rates have weighed on much of the rest of the stock market. But Big Tech’s momentum turned last month on investor concerns that their prices had been too high and that expectations for future growth were becoming too difficult to meet. A string of disappointing earnings reports, starting with updates from Tesla and Alphabet, added to the pessimism and accelerated the declines. Overall, the S&P 500 fell 160.23 points to 5,186.33. The Dow plunged 1,033.99 to 38,703.27, and the Nasdaq Composite fell 576.08 to 16,200.08.