The Dow closed more than 1,000 points lower and the other major U.S. stock indexes declined sharply today amid worries about slowing U.S. economic growth.
Chip stocks were among those trading sharply lower as investors curbed their expectations for how soon the artificial intelligence boom will pay off.
What had been growing scrutiny on the Federal Reserve morphed into broad-based criticism that the central bank has been too slow to cut interest rates.
While the most recent jobs report caused some market commentators to argue the Federal Reserve should have cut rates sooner — it held them steady again at 5.5% last week as it sought to further dampen inflation — other analysts pushed back on that idea. The latter group gained support when the Institute for Supply Management (ISM) published data today showing services businesses were still seeing healthy demand.
Markets close sharply lower after a bruising day of trading
The major U.S. stock indexes closed broadly lower today, though off their session lows.
The Dow Jones Industrial Average, which tracks 30 prominent companies, declined more than 1,000 points, or 2.6%, while the broader S&P 500 lost 3% and the teach-heavy Nasdaq fell 3.4%.
The indexes dropped sharply this morning, extending declines last week and following a significant fall-off from Japanese stocks. European markets also tumbled. But some stocks rallied back throughout the day, as economists noted underlying strength and stability in the U.S. economy.
The Japanese drawdown, in turn, came partly in response to the worse-than-expected U.S. jobs report published Friday that showed unemployment rising to 4.3% and just 114,000 roles added in July.
Yet, while the jobs report caused some market commentators to argue the Federal Reserve should have cut rates sooner — it held them steady again at 5.5% last week as it sought to further dampen inflation — other analysts pushed back on that idea. The latter group gained support when the Institute for Supply Management (ISM) published data later today showing services businesses were still seeing healthy demand.
Investing expert: "Rarely a profitable activity" for longterm investors to react to a big pullback
If you're a regular investor, how should you react to today's big sell-off?
For Steve Sosnick, chief strategist at Interactive Brokers financial group, the answer is: stoically.
In an email to NBC News, Sosnick said that while it is always healthy for everyday market participants to check in on how their holdings are performing, it does not make sense to react based on one, or even multiple, bad days.
"Reacting to panicky markets is rarely a profitable activity for long-term investors," he said.
Still, drawdowns like today's can be instructive.
"If a day like today is truly uncomfortable, then you’re carrying too much risk," he wrote, noting today's downdraft "hasn’t even been a 10% correction in the S&P 500 so far."
"The index is still up 9% for the year-to-date," Sosnick said. "That’s normally a great return! All we’ve done is given back the gains that we’ve made since the end of April. So if this downdraft is truly problematic for someone, they should consider more defensive investments."
On the other hand, today does not necessarily represent a buying opportunity either, he said, noting everyone from Warren Buffett to the CEO of Nvidia, Jensen Huang, has recently sold some stock.
"Maybe it’s time to be a bit judicious, at least when it comes to reflexively buying the recent momentum leaders," Sosnick said.
That idea was echoed by Bill Gross, a legendary investor known for his bond trades, who said he was neither buying nor selling.
When was the last emergency interest rate cut?
As the pandemic began hitting the United States, the Federal Reserve on March 15, 2020, cut interest rates to zero and immediately launched a $700 billion asset purchase program to sheild markets from its impact.
At the time, the Fed also cut rates for emergency lending to financial institutions to zero. Global markets were facing such severe disruptions from Covid that the Fed also coordinated its moves with the central banks of the United Kingdom, Canada, Japan, Switzerland and the European Central Bank, which oversees rates and monetary policy for 27 other countries.
Markets reacted sharply, with multiple rare marketwide trading halts pausing stocks throughout the day because the moves were so dramatic. On March 16, the Dow Jones Industrial Average dropped nearly 13%, and the S&P 500 and Nasdaq Composite plunged around 12%.
Trillion-dollar companies off worst levels of the day
Trading in some of the biggest companies in the world is rebounding after suffering significant losses earlier in the session.
Microsoft, Alphabet and Meta Platforms are now trading down less than 3%. Apple, the world's most valuable company with a $3.2 trillion market value, is down around 4% after earlier falling as much as 12% at the start of the trading day. Amazon.com, which fell 10% earlier, is now trading lower by just about 4% as well.
GDP has been strong in 2024
One reason why some market commentators believe today's sell-off is not a sign of newfound underlying economic weakness is that gross domestic product (GDP) measures have, so far, been stronger than expected this year.
The preliminary reading of the GDP for the second quarter, which encompasses April, May and June, came in at 2.8% — well ahead of forecasts.
The report had unmistakable signs of a slowdown, with the personal consumption expenditures price index — a key measure for the Federal Reserve — declining from 3.4% in Q1 to 2.6% in Q2.
But overall, GDP estimates continue to suggest a healthy economy: An unofficial real-time measure of growth published by the Atlanta Federal Reserve on Aug. 1 showed a measure of 2.5%.
#kamalacrash trends on X after Trump post
GOP presidential nominee Donald Trump sought today to turn the sell-off into a political issue, helping make #kamalacrash the No. 1 trending topic on X.
On his Truth Social account, Trump posted "KAMALA CRASH!" followed quickly by "KAMALA CRASH vs. TRUMP CASH!" around 11 a.m. ET.
Right-wing accounts on X including Libs of TikTok, RNC Research and End Wokeness were quick to follow as they attempted to portray the market drawdown as the result of Vice President Kamala Harris' recent surge in polls.
It comes as X, owned by Trump supporter Elon Musk, has come under scrutiny for circulating false and misleading information in the run-up to November's election. Today, officials from Minnesota, Pennsylvania, Michigan, New Mexico and Washington said X's AI widget, Grok, misled users about ballot deadlines after President Joe Biden withdrew his re-election bid.
Trump's running-mate, Ohio Sen. JD Vance, also published a post on Harris on X, writing, "This moment could set off a real economic calamity around the globe. It requires steady leadership--the kind President Trump delivered for four years. Kamala Harris is too afraid to answer media questions and cannot lead us in these troubled times."
However, he added his own hashtag: "#WheresKamala."
The S&P 500 has added about 36% during the Biden administration, with the Nasdaq up a little more than 20% and the Dow 25% higher since early 2021.
The Harris campaign declined to comment.
Schwab online trading services back after suffering issues
Charles Schwab said its online trading and portfolio platforms were fully operational again after earlier confirming that some clients were having trouble logging in.
Its platforms include the Schwab Trading service, Ameritrade and ThinkOrSwim.
Major indexes make up some ground at midday
Major U.S. stock indexes pared some losses as trading entered its midpoint of the day.
The Dow Jones Industrial Average was down less than 800 points, or just short of 2%, after falling as much as 1,100 points earlier in the day.
The S&P 500 was down 2.2% after declining more than 3% earlier.
And the tech-focused Nasdaq was off 2.6% after declining at much as 4.3% to start the day.
Stocks were bolstered following a business-services report that signaled the U.S. economy remained on firm footing.
Some analysts suggest markets are overreacting
With the sour market reaction seeding fears of a recession, some economists and market watchers are urging calm. (The economy is not currently in a recession, an assessment that the National Bureau of Economic Research would have to declare).
RSM US Economist Tuan Nguyen wrote Monday morning that his team is "cautious over the 'panic' recession calls over the weekend," noting that economic fundamentals look "solid" for the time being.
"More importantly, we always advise against the overreactions to one month of data, especially after last week’s job data," Nguyen noted.
ING Chief International Economist James Knightley similarly acknowledged that the July jobs report was "poor" but said the Institute for Supply Management (ISM) services report "suggests the situation looks ok with the economy growing." He added that he does not expect the Fed to make an emergency interest rate cut before its next scheduled announcement on Sept. 18.
Others are suggesting market pricing on a more aggressive interest rate cut are wrong. EY Chief Economist Gregory Daco also pointed to the ISM figures as a reason to read the market bets on an aggressive Fed cut as an "overreaction." Daco still expects to the Fed to cut by just 0.25% in September, an outlier view with markets now overwhelmingly expecting a 0.50% cut.