Summary – U.S. Market Recap: Dow (2.60%), S&P 500 (3.00%), Nasdaq (3.43%), Russell 2000 (3.33%)

Synopsis

US equities finished lower in Monday trading, although ended above worst levels. S&P logged its worst session in nearly two years with a very broad decline.  Only 22 stocks advanced in the S&P 500.

Volatility rose with a lot of commentary on the VIX (implied volatility gauge) spike higher. Big tech was the largest drag, with most names down over 3%. Other notable laggards were broad including semi-conductors, software, energy, autos, airlines, homebuilders, paper/packaging, crypto-linked names.

No areas firmly positive but relative outperformers included dollar stores, hospitals, and utilities. US government Treasuries were mixed, but came well off best levels. The yield on the 2 year briefly fell below the 10 year Treasury but ended the day back negative. The US dollar index was down 0.5% as yen strength remained the big story in FX. Gold finished off 1.0%. Bitcoin futures down 15.6%, at one point falling below $50K level. WTI crude settled down 0.8%.

Market drivers

Global risk-off again the story of the day. Nasdaq and Russell 2000 both in correction territory while S&P now down about 8.5% from its 16-Jul record high.

Growth worries remain a key focus after last week’s softer-than-expected July nonfarm payrolls and ISM manufacturing prints. At the same time a lot of commentary centred on the impact of unwinding of yen carry trades where hedge funds borrowed cheaply in yen to fund trades elsewhere e.g. Magnificent 7.  As the BOJ started to raise interest rates and the yen strengthened traders sought to cover their short positions.

An ongoing ramp up in AI scrutiny, Middle East tensions, US political uncertainty and unwinding of the “Trump trade”, big tech antitrust crackdown on Alphabet and Buffett’s reduction in Apple and significant cash pile all reinforced a negative sentiment in markets.

The selloff triggered a lot of “Fed behind the curve” chatter given the unemployment rate rise and speculation of an inter-meeting Fed rate cut, which seems unlikely. However, a more aggressive Fed approach over the next few meetings is likely, although market pricing of ~125 bp of cuts by year-end could be ambitious.

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