Markets around the world have been rocked by a combination of weakening economies, central bank decisions, and a sharp decline in tech stocks. Japan, in particular, was at the epicenter of this late summer storm, with the Topix index plummeting over 12% on Monday in the biggest sell-off since the 1987 “Black Monday” crash.
GLOBAL MARKETS SHAKE AS CRYPTO SELL-OFF ACCELERATES
WHAT IS BEHIND THE STOCK MARKET CRASH?
The recent sell-off has been driven by economic data that challenges the belief that global policymakers, led by the US Federal Reserve, can tame inflation without inflicting significant collateral damage. A US jobs report released last Friday revealed a much sharper hiring slowdown than expected, adding to concerns. The EU is also grappling with geopolitical tensions, slower global growth, and fragile consumer confidence, while China’s dominant manufacturing sector shows signs of weakening.
WHY ARE CRISES SO SEVERE?
Until recently, global equity markets were on the rise, fueled by hopes of a “Goldilocks” economic scenario and a surge in US tech stocks driven by AI enthusiasm. However, market pullbacks tend to be more rapid than upward movements. The S&P 500 has already dropped over 9% from its July peak. Additionally, the steep rise in equities this year has made stocks appear more expensive, which has been a constant concern for investors.
WHAT’S THE ROLE OF THE TECH SECTOR?
The tech sector has been at the forefront of this stock market crash. A small number of tech giants—Apple, Microsoft, Alphabet, Amazon, Tesla, Meta, and Nvidia—accounted for 52% of the year-to-date returns on the S&P 500 through the end of July. Now, these stocks are under immense pressure, transforming from market drivers into pivotal factors in the current sell-off.
TECH-RELATED CONCERNS DEEPEN
Other tech-related concerns have also surfaced. Intel, one of America’s most prominent chipmakers, saw its stock plunge by 30% last week. Nvidia, which briefly became the world’s most valuable company this year, has fallen 35% from its June highs.
WHY HAVE JAPANESE STOCKS BEEN HIT THE HARDEST?
Despite the recent bullish sentiment around Japan’s market resurgence and the record highs achieved by Tokyo stocks in July, domestic investors remained cautious. The rally was largely driven by foreign investors. The Japanese stock market, heavily traded and deeply exposed to global economic conditions, is often the first to feel the impact when global funds go into retreat, with investment “tourists” quickly withdrawing their money.
IS THE US FEDERAL RESERVE TO BLAME?
The Federal Reserve’s decision to hold interest rates above 5% last week was in line with expectations. However, the July jobs report, which showed slower hiring and an increase in unemployment, triggered fears that the Fed may have delayed lowering borrowing costs for too long, increasing the risk of a US recession. Fed Chair Jay Powell may face significant pressure if market instability persists.
