Wall Street headed sharply lower again after Japan's Nikkei index tumbles to worst loss since 1987

Trader John Romolo works on the floor of the New York Stock Exchange, Aug. 2, 2024. Japan's benchmark Nikkei 225 stock index has lost 12.4% on Monday, August 5, 2024, in the latest bout of sell-offs that are jolting world markets. (AP Photo/Richard Drew, File)

BANGKOK -

U.S. stocks are set to open sharply lower Monday, adding to steep declines in Asia and Europe and deepening a sell-off tied to worries about a recession in the U.S. economy. Japan’s main index plunged more than 12 per cent, its worst day since 1987.

S&P 500 futures are down 3.1 per cent and Nasdaq futures are sinking 4.7 per cent. Investors are fleeing the Big Tech names that until recently had powered the U.S. market higher: Apple fell more than 7 per cent and Meta was down six per cent in premarket trading. Chipmaker Nvidia tumbled 12.5 per cent.

Futures for the Dow Jones Industrial Average fell 2.1 per cent.

A report Friday showing hiring by U.S. employers slowed last month by much more than expected followed weak reports on manufacturing and construction and stoked fears the U.S. economy was finally bending under the pressure of high interest rates. Investors worldwide sold stocks and moved to the safety of bonds, pushing bond yields sharply lower.

The shakeup began just a couple of days after U.S. stock indexes had jumped to their best day in months after Federal Reserve Chair Jerome Powell set the stage for possible rate cuts to begin in September.

But after Friday's jobs report, worries are rising the Fed may have kept its main interest rate at a two-decade high for too long, raising risks of a recession in the world’s largest economy. A rate cut would make it less expensive for U.S. households and companies to borrow money, but it could take time for the effects to boost the economy.

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Until Friday, there had been relatively few huge market swings in the past year.

A bonanza around artificial intelligence technology helped drive Big Tech stocks higher, while other areas of the market held up amid rising hopes for coming cuts to interest rates by the Federal Reserve. But professional investors have been warning that shakier times may be ahead given uncertainty about how quickly the Fed will cut interest rates and other big questions.

Monday’s plunge in the Nikkei followed a nearly six per cent drop on Friday. In mid-July, the index had risen to all-time highs. Its worst single-day rout was a plunge of 3,836 points, or 14.9 per cent, on Oct. 19, 1987, a global markets crash that was dubbed “Black Monday” but proved to be only a temporary setback despite fears it might have augured a worldwide downturn.

On Monday, the Nikkei closed down 4,451.28 points at 31,458.42. It had dropped 5.8 per cent on Friday, making this its worst two-day decline ever.

Share prices have fallen in Tokyo since the Bank of Japan raised its benchmark interest rate on Wednesday.

The Japanese yen also has fallen sharply, trading at 142.37 yen for one U.S. dollar, down from 146.45 late Friday and sharply below its level of over 160 yen a few weeks ago.

Analysts said another factor contributing to the falling share prices was carry trades, where investors borrow money from a country with low interest rates and a relatively weak currency, like Japan, and invest those funds in places that will yield a high return. Investors have been selling stocks to repay those loans as their costs have risen with a stronger yen and higher interest rates.

South Korea stocks sank almost nine per cent.

In Europe, markets in London, Paris and Frankfurt each dropped more than two per cent.

The euro rose to US$1.0951 from US$1.0923.

One of the few bright spots was Kellanova, formerly Kellogg’s, which gained 22 per cent on reports that Snickers owner Mars was deep in talks to acquire the cereal and snackmaker.

The latest setback has hit markets heavily weighted toward computer chipmakers like Samsung Electronics and other technology shares: on Monday, South Korea's Kospi plummeted more than nine per cent as Samsung's shares sank 10.3 per cent. It closed 8.8 per cent lower at 2,441.55.

Taiwan's Taiex also crumbled, losing 8.4 per cent as Taiwan Semiconductor Manufacturing Co., the world's biggest chip maker, dropped 9.8 per cent.

“To put it mildly, the spike in volatility-of-volatility is a spectacle that underlines just how jittery markets have become,” Stephen Innes of SPI Asset Management said in a commentary. “The real question now looms: Can the typical market reflex to sell volatility or buy the market dip prevail over the deep-seated anxiety brought on by this sudden and sharp recession scare?”

The VIX, an index that measures how worried investors are about upcoming drops for the S&P 500, was up 105 per cent as of early Monday. Bitcoin which recently had surged to nearly US$70,000, was down nearly 17 per cent at US$52,100.00.

Oil prices slipped, with U.S. benchmark crude oil giving up US$1.41 to US$72.11 per barrel. Brent crude, the international standard, lost US$1.35 cents to US$75.46 per barrel.

Investors will be watching for data on the U.S. services sector from the U.S. Institute for Supply Management due later Monday that may help determine if the sell-offs around the world are an overreaction, Yeap Jun Rong of IG said in a report.

Even though worries over weakness in the U.S. economy and volatile markets have rippled around the world, the U.S. economy is still growing, and a recession is far from a certainty.

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But the mood was decidedly dark.

Hong Kong's Hang Seng index lost 2.2 per cent to 16,579.97 and the S&P/ASX 200 in Australia declined 3.7 per cent to 7,649.60.

The Shanghai Composite index, which is somewhat insulated by capital controls from other world markets, edged higher but then gave way, losing 1.5 per cent to 2,862.56.

The S&P 500's 1.8 per cent decline Friday was its first back-to-back loss of at least one per cent since April. The Dow Jones Industrial Average dropped 1.5 per cent, and the Nasdaq composite fell 2.4 per cent, taking it to 10 per cent below its record set last month. That level of drop is what traders call a “correction.”