Wall Street is spinning out of control: International stock markets in free fall

The S&P 500 dropped by 2.4% in afternoon trading. The Dow Jones Industrial Average plunged 864 points, or 2.2%, while the Nasdaq Composite declined by 2.8%. These declines are the latest chapter in a global sell-off that began last week. Japan's Nikkei 225 experienced its worst day since Black Monday in 1987, plummeting 12.4%. For investors in Tokyo, it was the first opportunity to react to Friday's report showing that U.S. employers created significantly fewer jobs than expected last month. This fuels fears that the Federal Reserve has slowed down the U.S. economy too much with its high interest rates. Professional investors pointed out that technical factors could amplify market trends, yet the losses were still dizzying. South Korea's Kospi Index fell by 8.8%, European stock markets dipped by more than 1%, and Bitcoin slid from over $61,000 on Friday to below $55,000. Even gold, traditionally a safe haven in tumultuous times, lost 1%. Traders speculate whether the damage is severe enough for the Federal Reserve to lower interest rates in an emergency meeting before their scheduled decision on September 18. The yield on two-year U.S. Treasury bonds, which closely aligns with expectations of the Fed, briefly fell below 3.70% in the morning but rebounded to 3.93%. The U.S. economic growth persists, and a recession does not appear imminent. The Fed is balancing between being too aggressive with rate hikes, which could stifle the economy, and too lenient measures, which could boost inflation. Goldman Sachs economist David Mericle raised the probability of a recession in the next 12 months to 25%, up from 15%, although the overall economic data is 'fine'. Some of the recent declines on Wall Street might also be the deflation of a market that climbed to new heights this year in anticipation of rate cuts and AI hype. The CEO of IG North America, JJ Kinahan, stated that many current concerns derive from waning euphoria around AI and a market ahead of its time. Additionally, the Bank of Japan's decision to raise the interest rate last week triggered turmoil. This strengthened the yen's value and forced traders to unwind deals where they had borrowed money almost for free in Japan and invested it globally. U.S. stocks pared their losses on Monday after a report showed stronger-than-expected growth in the services sector. Treasury yields also rose on better-than-expected data. Nonetheless, companies whose profits are closely tied to economic strength suffered significant losses due to fears of an economic downturn. Small-cap stocks in the Russell 2000 Index fell by 2.8%, abruptly halting their recent recovery. Furthermore, major tech stocks came under considerable pressure. Apple, Nvidia, and other well-known names in the 'Magnificent Seven' recorded substantial declines. Apple fell by 3.9% after Warren Buffett's Berkshire Hathaway reduced its stake in the company. Nvidia dropped even further, down 5.5%, as reports of delays in new AI chips pressured analysts' forecasts. Geopolitical tensions add to market concerns. The Middle East conflict between Israel and Hamas could significantly impact oil prices, while the U.S. elections could bring additional turmoil. A recession-related threat could put Vice President Kamala Harris on the defensive, while a slowdown in growth might force former President Donald Trump to present alternative economic policies. According to Quincy Krosby of LPL Financial, the connection between employment and consumer spending remains a key issue in the run-up to the presidential elections.