On Monday, August 5, the global stock market crash gained momentum on Wall Street, with the tech-heavy Nasdaq index opening down 6.3%, adding to its 2.43% decline on Friday, August 2. Meanwhile, the S&P 500, which reflects major American corporations, fell by 4.1%.
By the end of the trading day, both indices closed significantly lower, down 3.4% and 3%, respectively. Since reaching a high in July, the correction has now totaled 13.25% for the Nasdaq and 8.5% for the S&P 500. The collapse has been attributed to the bursting of the artificial intelligence bubble, with Nvidia at the forefront. The microprocessor giant, which briefly held the title of the world’s most valuable company, saw its stock drop 5.6% on Monday, marking a decline of over 25% since its peak.
Similarly, Apple, often viewed as one of the safest technology investments, continued to slide, exacerbated by news on Saturday, August 3, that Berkshire Hathaway, led by renowned investor Warren Buffett, sold half of its stake in Apple during the latter half of the year for tax and strategic reasons. Apple’s stock fell 4.3% on Monday.
Panic was ignited on Friday following the release of July’s employment figures in the United States, which revealed a sharp increase in unemployment, now at 4.3% of the workforce, while job creation was unexpectedly low at 114,000, down from 179,000 in June. Compounding these issues was a dismal industrial investment index and declining consumer sentiment, highlighted by disappointing results from consumer goods companies, including McDonald’s and various airlines. Analysts are concerned that the combination of a technology bubble, decreased investment, and sluggish consumer spending points to a looming recession.
Cut Rates Now
Adding to the turmoil, this troubling news followed the Federal Reserve’s (Fed) meeting on Wednesday, July 31, during which Chairman Jerome Powell announced a likely rate cut in September, reducing rates that have been at their highest since 2006 (between 5.25% and 5.50%). This announcement initially spurred optimism in the markets. However, the Fed is now being criticized for acting too slowly. Critics argue that it failed to recognize rising inflation in 2021 and delayed until March 2022 to raise rates. The institution is perceived as having overlooked signs of an impending recession, maintaining high interest rates out of fear of the historical precedents of inflation seen in the 1970s and 1980s without exhibiting the necessary decisiveness.
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