NEW YORK (Reuters) -Major U.S. stock indexes fell sharply on Monday, with the Nasdaq down more than 3%, as U.S. recession worries shook global markets and drove investors out of risky assets, while Apple shares dropped as Berkshire Hathaway cut its stake in the company.
The recession worries followed weak economic data last week, including Friday’s U.S. payrolls report.
Indexes pared losses after data showed U.S. services sector activity in July rebounded from a four-year low amid a rise in orders and employment.
Shares of Apple fell 4.4% after Berkshire Hathaway halved its stake in the iPhone maker. Billionaire investor Warren Buffett also let cash at Berkshire soar to $277 billion.
Nvidia slid more than 6%, while Microsoft was down 3.4% and Alphabet was down 2.5%.
Chicago Fed President Austan Goolsbee downplayed recession fears, but said Fed officials need to be cognizant of changes in the environment to avoid being too restrictive with interest rates.
“The consequence of higher-than-normal monetary policy is a slowing economy. I don’t know that there’s justification for the apparent panic selling that we’ve seen in the last few days because the data certainly doesn’t suggest a crash landing” in the economy, said Oliver Pursche, senior vice president, adviser for Wealthspire Advisors in Westport, Connecticut.
The Dow Jones Industrial Average fell 986.88 points, or 2.48%, to 38,750.38, the S&P 500 lost 152.23 points, or 2.85%, to 5,194.33 and the Nasdaq Composite dropped 563.51 points, or 3.36%, to 16,212.65.
The CBOE Volatility index, Wall Street’s “fear gauge,” rose sharply.
The weak jobs report and shrinking manufacturing activity in the world’s largest economy, coupled with disappointing forecasts from the big U.S. technology companies, and the Nasdaq Composite on Friday confirmed it was in correction territory.
The so-called Magnificent Seven group of stocks – the main driver for the indexes hitting record highs this year – were set to wipe out nearly $900 billion from the combined market value of the companies.
Traders also attributed some weakness in stocks to unwinding of sharp positions of carry trades, where investors borrow money from economies with low interest rates such as Japan or Switzerland to fund their bets in high-yielding assets elsewhere.
U.S. Treasury yields tumbled to their lowest level in a year and a closely watched gap between two- and 10-year Treasury notes turned positive for the first time since July 2022, usually indicating the economy is heading into a downturn. [US/]
Traders now see a 92.5% probability that the U.S. central bank will cut benchmark rates by 50 basis points in September, compared with an 11% chance seen last week, according to CME’s FedWatch Tool.
Pringles maker Kellanova soared 15.2% after a Reuters report said candy giant Mars was exploring a potential buyout of the company.
Declining issues outnumbered advancing ones on the NYSE by a 10.10-to-1 ratio; on the Nasdaq, a 6.64-to-1 ratio favored decliners.
The S&P 500 posted 16 new 52-week highs and 26 new lows; the Nasdaq Composite recorded 12 new highs and 492 new lows.
(Reporting by Caroline Valetkevitch in New YorkAdditional reporting by Shubham Batra and Shashwat Chauhan in BengaluruEditing by Arun Koyyur and Matthew Lewis)
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