Global markets plummet on news of weakening U.S. economy

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Published Date 8/5/2024

This morning heralded one of the biggest market swings since the 1980s, according to experts. MSNBC reported that a disappointing jobs report spurred investor fears that the Federal Reserve made a mistake last week when it kept interest rates unchanged, and that the world's largest economy is headed toward a recession.

It was all exacerbated by volatility in some of the major earnings and a more hawkish Bank of Japan, which confirmed a bear market in Asia overnight.

U.S. Treasury yields, which move inversely to prices, extended their fall. At 9:30 a.m. ET, the yield on the 10-year Treasury was down roughly 11 basis points to 3.685%. The 2-year Treasury yield was last trading at 3.742%, down more than 12 basis points. The yield on Japan's 10-year government bond, meanwhile, plunged 21 basis points to 0.741%.

“The buying was in sharp contrast to the selling seen in the stock markets,” says MSNBC’s Lee Yin Chan and Jenni Reid, who reports that U.S. stocks fell on Monday, with the Dow Jones Industrial Average falling more than 1,100 points, or about 3%. The Nasdaq Composite sank 5%, while the S&P 500 dropped 3.8%.

While U.S. recession fears appeared to trigger the start of the sell-off last week, some wider factors should not be overlooked. One expert quoted said that the totality of recent U.S. data would still most likely lead the Federal Reserve to cut rates by 25 basis points in September, rather than opting for a bigger trim.

Other experts say the current volatility in markets has "been a long time coming," and that it is not a reason to panic. Some say the shake-up may actually bring equity investors back if stocks offer better value.

Chan and Reid asked George Lagarias, chief economist at Forvis Mazars, who shared a similar view in a note on Monday.

“Stock and bond market moves are not due to an impending [U.S.] recession. Stocks are naturally correcting and bonds are rising due to worse-than-expected macroeconomic data," he said. "Assuming that the Fed acts quickly enough so that a risk-asset correction doesn't threaten an actual recession, a further correction could thin out the market and allow investors to re-deploy cash at more reasonable valuations," he said.

Realtor.com’s Melissa Dittman Tracy reports that home buyers and refinancers had the opportunity to lock in the lowest mortgage rates since early February this week. Plus, the average mortgage rate is now lower than a year ago. “That may prompt some prospective home buyers to hold out for even lower mortgage rates.”

But Lisa Sturtevant, Bright MLS chief economist, says that hoping that rates to head much lower could be a miscalculation. “The Federal Reserve will almost certainly cut rates in September—the first cut since 2020,” Sturtevant says. “However, there is no direct ‘cause-and-effect’ relationship between the Fed rate cuts and a drop in mortgage rates.” What’s more, “expectations about a September rate cut are already baked in, which is why we’re already starting to see mortgage rates start to come down.”

Still, Sturtevant does expect mortgage rates to continue to fall throughout the second half of the year. And housing affordability will remain a top challenge for home buyers, who have been facing higher home prices, says Sam Khater, Freddie Mac’s chief economist. However, “a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential home buyers,” he says.

MSNBC, Realtor, TBWS

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