Stocks took a sharp tumble around the world on Monday, with the US Dow Jones and UK FTSE100 both dropping 2 percent and Japan’s Nikkei index suffering its worst day in 37 years, amid worries over the possibility of a global recession.
London’s blue-chip index closed 2.1 percent down, falling 173 points to 8,000.
Meanwhile, the US Dow Jones was down 2 percent, with an 842-point drop in trading to start Monday. The Nasdaq was down nearly 3 percent, losing 476 points to start the day. This comes after US jobs data sparked a global stock market sell-off at the end of last week. Investors were spooked at the prospect of a potential American recession fueled by poor earnings reports from major companies and concerns about the tech sector.
Analysts said Friday they feared the US Federal Reserve may have made a mistake by not cutting interest rates, and it might now be too late to hold off a recession.
A number of the top tech companies, such as Nvidia, Meta, and Apple, lost six percent of their market capitalization. Apple was still affected by billionaire Warren Buffett selling half his stake in the company on Saturday even as he remains its largest shareholder. Buffett also got rid of $3bn of Bank of America stock last week.
The Monday dip also struck the cryptocurrency markets with Bitcoin losing more than 17 percent of its value and Ethereum dipping more than 21 percent.
During the last 24 hours, the worldwide digital currency market lost $1.79tn of its market capitalization.
Last week’s jobs report showed hiring has slowed more than expected and prompted worries that a recession may be in the near future. Goldman Sachs analysts raised the likelihood of a recession next year from 15 to 25 percent, but they added that the risk remains “limited.”
The less-than-stellar jobs report and the selling off of stocks worldwide has prompted expectations that the Federal Reserve will take action and put in place interest rate cuts to boost the economy.
A recession would negatively impact the Federal Reserve’s plan to cut interest rates more slowly and some critics have slammed the central bank for not taking more decisive action and cutting rates when inflation appeared to slow.
UBS economist Paul Donovan said in a client note on Monday morning that “The Federal Reserve has been late in cutting rates, but that has been true for some time,” according to The New York Times. “The policy error is making things worse for lower-income households.”
Even in the face of the downward trajectory for the stock markets, Dan Ives, who covers the tech industry for Wedbush Securities, told CNBC on Monday that the stock selloff was being pushed by a “massive fear panic that will create opportunities” for tech companies.
He said he doesn’t believe this is the end of the tech bull market and that investors should “view this as more of an opportunity rather than catching a falling knife.”
The drop comes as the Nikkei 225 lost 13 percent on Monday to hit a seven-month low, in a day of trading worse than at any time during the 2008 global financial crisis. The Japanese benchmark index fell 4,451 points to 31,458 on Monday.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “Markets are in absolute turmoil this morning thanks to the Nikkei 225’s biggest one-day drop since 1987, which has wiped out the index’s gains for the year.”
The European STOXX 600 index was at its lowest point since mid-February after falling 2.6 percent.
“Investors continue to flee tech stocks, and the Nasdaq 100 is expected to open down 1000 points lower from Friday’s close, a loss of over five percent,” Beauchamp said. “This is a perfect demonstration of what happens when everyone tries to sell at once. Such moves don’t stop in a single day and we likely have a summer of volatility ahead of us, particularly as we await developments in the Middle East.”
The mid-cap FTSE 250 fell by more than three percent. France’s CAC 40 lost 2.6 percent, while Germany’s Dax dropped 2.8 percent in early trading.
Oil prices have also slipped. Brent crude prices were down one percent to 76.04 US dollars on Monday morning, its lowest point this year.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “The FTSE 100 has opened down as the US sneeze risks becoming a cold.
“Exporters bore the brunt of the sell-off as contagion from last week’s poor employment and manufacturing data in the States put recessionary fears back on the table,” he said. “The discussion around September’s rate decision at the Federal Reserve Bank has moved from if to how much, with the odds now moving in favor of a half-point cut.”