A global market rout intensified today as stock markets in London, Tokyo and New York fell over mounting fears that the United States could be heading for a recession. By mid-afternoon in London the FTSE 100 was almost 2.27 per cent, or 187 points, lower at 7,988.63 with the more UK-focused FTSE 250 down 2.7 per cent per cent, at 20,267.
The heavy falls wiped billions off the value of pensions and Isas. In New York, the technology-heavy Nasdaq fell even further into official correction territory having dropped last Friday more than 10 per cent from its most recent record close of 18,647.45 on July 10.
The index was 573.53 points, or 3.35 per cent, lower at 16,213 while the more broadly based S&P 500 was just holding above correction territory.
FTSE 100 closes after huge single-day fall
The FTSE 100 fell by 166.48 points, or 2 per cent, to 8,008.23, its largest single-day fall in slightly more than a year.
Scottish Mortgage Investment Trust, exposed to the US tech sell-off, was among the biggest fallers on the day — dropping by 45¼p, or 5.6 per cent, to 768p.
A fall of 69p, or 35 per cent, to 128p for John Wood Group after Sidara said it was pulling out of the bidding for the energy services company pushed the FTSE 250 well into the red.
The index, owing also to its relatively higher exposure to Asia-focused and tech-focused trusts, dropped by considerably more than the FTSE 100, ending down by 589.61 points, or 2.8 per cent, to 20,236.74.
SoftBank shares slump wipes out £12bn
More than £12 billion was erased from the value of SoftBank in one day after the Japanese technology conglomerate found itself in the eye of the storm over financial markets (Ben Martin writes).
Shares in the company dropped by almost 19 per cent on Monday in the heaviest one-day fall by the stock since the business, which owns the British microchip designer Arm, listed in Tokyo 26 years ago.
It takes the slump suffered by SoftBank shares since the beginning of last week to 30 per cent, making it one of the biggest casualties of the global rout. It also deals a big blow to the fortune of Masayoshi Son, SoftBank’s billionaire founder and chief executive who owns about 30 per cent of the group’s shares.
• Read more: Japanese technology conglomerate suffers heaviest one-day fall
US-listed bank shares drop
Shares in the biggest US-listed banks dropped sharply as fears of a recessions sent investors fleeing from a sector closely tied to the health of the economy.
Citigroup’s share fell by 5.6 per cent, Goldman Sachs and Morgan Stanley retreated 4.5 per cent and 4.2 per cent, respectively, while Wells Fargo and Bank of America were down about 4 per cent and JP Morgan’s shares were trading 2.5 per cent lower.
Investors have been increasingly jittery since a crisis of confidence hit the sector last year, in part due to higher interest rates, and took down three major regional players.
Vix soars above 42 in sign of panic
Traders on the floor of the New York Stock Exchange
SPENCER PLATT/GETTY IMAGES
In a sign of the panic on Wall Street and in the City of London today, the Vix, better known as the “markets’ fear gauge”, has popped to its highest level since the early days of the pandemic.
The index, which is designed to calculate the expected volatility of the US stock market, is up above 42, the highest it has been since April 2020, shortly after the world went into the first lockdowns.
For context, until today the Vix had not been above 20 so far in 2024. It is higher now than it was when the Russia-Ukraine war broke out two and a half years ago, although it remains some way shy of its pandemic peak of 82.
Apple shares at lowest level in a month
Shares in Apple were trading at their lowest level in more than a month after falling 4.6 per cent as the market reacted to news of Warren Buffet dumping another $50 billion-worth of shares in the iPhone maker, halving Berkshire Hathaway’s holding in the company since the start of the year.
Berkshire Hathaway, the New York-listed conglomerate led by the “Sage of Omaha”, sold 390 million shares in the technology company during the second quarter, leaving it with 400 million shares worth about $84.2 billion.
Buffet, who started building a stake in the company in 2016, began accelerating its selling in May after dumping 115 million shares during the first three months of the year.
Central bank could make larger rate cuts
Investors are piling into bets that the US Federal Reserve will respond to signs of weakness in the economy with more aggressive interest rate cuts. Futures prices now imply the central bank will cut rates to a range of 4 per cent to 4.25 per cent by year-end, according to CME Group data. That would require 1.25 percentage points in cuts over its meetings in September, November and December.
A larger September rate cut is now expected by the vast majority of investors. Futures imply a 94.5 per cent chance of a half-percentage point cut at that meeting, up from 74 per cent on Friday and just 11 per cent a week ago, according to CME Group. A week ago, investors had expected just 0.75 percentage point of cuts this year, or three quarter-point reductions.
Overnight tumble single biggest Nikkei points fall
The Tokyo stock exchange plunged overnight
KIMIMASA MAYAMA/EPA
Heavy falls in Tokyo overnight had triggered the global sell-off. The 4,451-point, 12.4 per cent tumble in the Nikkei to 31,458 was the single biggest points fall in the Nikkei ever and the largest in percentage terms since 1987.
Some of Japan’s most recognisable companies were caught up in the sell-off, with the carmakers Toyota Motor and Honda diving by 14 per cent and 18 per cent respectively, and the electronics giant Sony down by 8 per cent.
Another big faller was SoftBank, best known in the UK for its part-ownership of the Cambridge-based chip design group Arm Holdings, which fell by 19 per cent. Fast Retailing, which owns the Uniqlo chain, was down by almost 10 per cent.
Trouble accessing share-trading accounts
Thousands of investors have been unable to log into their share-trading accounts in early trading in the US, with the websites of some of the biggest American brokerages struggling to cope amid the market sell-off.
Customers of Charles Schwab, Fidelity, Vanguard and TD Ameritrade, among others, have reported troubles accessing their accounts, according to Downdetector.com.
Charles Schwab blamed a “technical issue” for why some of its customers cannot log on and cautioned that “hold times may be longer than usual” for anyone wanting to speak to one of its customer care team. Fidelity said that it was “working urgently” to resolve the issues.
Investors already on the hunt for bargains
Some investors are already looking for bargains in Tokyo. Joe Bauernfreund, who manages the £1 billion AVI Global Trust, a FTSE 250 member, said that some of the share price changes today were “devoid of fundamentals” down to panic.
One of his investments, Nihon Kohden, a Japanese maker of defibrillators and ventilators, had the dubious distinction of being the worst performer in the Topix index, down by 24 per cent today.
The trust’s shares fell 4.8 per cent today, while the sister trust AVI Japan Opportunities, which Bauernfreund also manages, was down 6.75 per cent.
However, Bauernfreund was sanguine: “We will be adding to some of these beaten up names over the next few days,” he said. There were opportunities to be had from “sifting through the rubble,” he said.
Analysis: What does the turbulence in Japan mean for global markets?
Only two months ago the outlook for Japanese shares had rarely looked sunnier (Patrick Hosking writes). There was “a compelling case for long-term investments into Japanese equities”, declared June Aitken, chair of London-listed CC Japan Income and Growth Trust, one of the easiest ways for UK investors to buy into the Tokyo market.
Improving economic conditions, positive governance reforms, a much greater emphasis on capital efficiency and a relatively weak yen should all support valuations, she said. The country’s expertise in robotics, AI and other corners of technology were a bonus.
She wasn’t alone. Mainstream investment opinion was that after many false dawns, the Japanese market was at last hauling itself out of a decades-long slump. Until last month Japan had become one of the best-performing major markets in the world, with the Nikkei 225 index surging by about 50 per cent in the previous two years.
• Read more: The slump in the Nikkei 225 index has dashed any complacency about the world’s third-largest economy
FTSE 100 at 2.1 pr cent in final hour
As the FTSE 100 entered its final hour of trading, the premier index was trading 2.1 per cent at 8,001.04, looking on track to settle at its lowest level since mid-April. The the more UK-focused FTSE 250 slipped 2.7 per cent, to 20,275.
Scottish Mortgage Investment Trust, which invests in many of the technology companies listed in New York, was the biggest faller in the blue-chip index, down 7.5 per cent. Bill Ackman’s Peershing Square Holdings was down 4.5 per cent.
A weakness in gold prices caused miners who dig for the yellow metal to fall. They included Fresnillo and Endeavour Mining, which were down 5.6 per cent and 4.4 per cent, respectively.
‘Magnificent Seven’ losses to wipe $900bn
Among the biggest stock market fallers in the US included Intel, the chipmaker, which last week said that it was planning to cut 15,000 jobs in an attempt to revive its manufacturing operations, which dropped 7.1 per cent. Shares in Goldman Sachs, the Wall Street investment bank, lost 3.8 per cent.
The “Magnificent Seven” stocks of giant US technology companies were under pressure, with Apple and Amazon tumbling 4.2 per cent and 4 per cent, respectively. Microsoft fell 2.6 per cent.
The losses in the Magnificent Seven stocks were set to wipe out nearly $900 billion from the combined market value of the companies.
Warning to Goldman Sachs clients
Goldman Sachs, the US investment bank, warned in a note to clients over the weekend that the US Federal Reserve would have to cut interest rates sharply if incoming data reinforced concerns about the US economy.
The prediction fed into the global stock market sell-off on Monday, which has seen the main Japanese stock index — the Nikkei 225 — fall at the fastest daily pace since the 1980s. However, Goldman’s analysts said that they did not believe the latest weak labour market data signalled the start of a trend. Figures published last week by the US Bureau of Labor Statistics revealed that the US economy added 114,000 jobs in July, well below expectations, triggering sharp declines in stock markets around the world.
The Goldman analysts conceded, however, that, if they are wrong and the labour market has indeed taken a downturn, “then a 50 basis points cut would be likely in September” from the Fed.
Separate data released on Monday afternoon signalled that the US economy is in better shape than initially thought. The ISM services PMI climbed to 51.4 in July from 48.8 in the previous month. It also topped analysts’ expectations and the 50-point mark that separates growth from contraction. Employment in the services sector ramped up, the data showed.
Comment: Black Monday crash didn’t last long. We’ll bounce back again now
On Monday, Japan’s stock market suffered its biggest fall since Black Monday in 1987 (Gerard Lyons writes). There was contagion as stock markets across the globe crashed.
Last Wednesday, the US Federal Reserve left policy rates unchanged at 5.25 per cent to 5.5 per cent but stressed its bias to ease. By Friday the Fed’s lack of action was already being seen as a policy mistake, as data showed US jobs growth slowing and unemployment rising in July.
Although the Fed described the economy as solid and drew attention to strong private domestic demand, the rate of US unemployment is 0.9 per cent above the low seen in April 2023, often a harbinger of recession. Now the markets fear a hard landing and expect US rates to be cut by 1.25 points by December.
• Read more: The world economy has proved resilient to shocks