Today’s meltdown began in Japan, where Tokyo’s Nikkei 225 crashed 13.4% soon after opening. That’s the country’s biggest stock market crash ever, beating the one than after the deadly 2011 tsunami, which killed 20,000 people. It’s worse than crashes during the 2008 financial crisis and on Black Monday in 1987.
Markets have also plunged in South Korea, Australia, Hong Kong, China and Europe, while the UK’s FTSE 100 dropping 2.5% in early trading.
This is bad for Stocks and Shares Isa and pensions investors, as the value of their holdings have plunged as well, knocking thousands of pounds off valuations in a matter of days.
All eyes are now on the US, which triggered today’s tsunami by plunging on Friday afternoon, after poor jobs data suggested the country is heading for recession.
Wall Street doesn’t open until 2:30pm today, UK time, but an instant crash now looks like a racing certainty. Prices could fall as much as 5% as investors dash to get their money out.
This stock market meltdown should be stamped “made in the US”. That’s where it started, and that’s where it’ll end.
Yet it seems to have sprung from nowhere.
Just last week, investors still believed the US was heading for a soft economic landing. Although central bank the US Federal Reserve refused to cut interest rates in August as hoped, investors were looking forward to the first rate cut at its next meeting on September 17.
Now they can’t wait any longer.
Chris Beauchamp, chief market analyst at online trading platform IG, said investors are now in “absolute turmoil”.
“In the space of barely two days markets have gone from looking forward to a Fed rate cut in a growing economy to fretting about an impending recession.”
Last week, US manufacturing data plunged investors into gloom as it suggested the economy is contracting fast, while unemployment soared.
Concerns about a wider conflict in the Middle East between Israel and Hezbollah have driven the Vix measure of stock market volatility, known as the “Fear Index”, to a two-year high.
Investors now hope the Fed will cut interest rates by 0.5% in September, rather than the 0.25% anticipated earlier, but even this could fail to prevent a US recession.
US technology stocks such as Nvidia, Apple, Tesla and Microsoft have been rocketing but now they look far too expensive and are plunging back to earth.
New York’s tech-focused Nasdaq 100 is expected to crash 1,000 points when it opens today, a loss of more than 5% as investors rush for the exits and Beauchamp warned of a “summer of volatility”.
This will further ramp up UK political and social tensions, where new Labour PM Keir Starmer’s honeymoon period has come to an abrupt end as the country descends into disorder.
There were hopes that the UK economy was starting to recover, boosted by the Bank of England’s decision to cut interest rates from 5.25% to 5% in July.
Yet with chancellor Rachel Reeves talking up the country’s economic “black hole” and threatening a host of tax hikes in her Budget on October 30, sentiment may collapse here, too.
We live in a bleak world as war in Ukraine rages while Western countries tear themselves apart. They’re fighting over immigration, culture wars and plenty more, but there’s one factor at the heart of it.
Our economies have been going sideways for years, thanks to the financial crisis, Covid lockdowns and rocketing inflation. Today’s meltdown will only add to the gloom.
Let’s cross our fingers and hope the Fed cuts rates sooner rather than later. Right now, it’s lost control of events.
As ever, investors shouldn’t panic and sell, this will only turn paper losses into real ones.
Given time, stock markets always recover. But there’s going to be a lot more pain before they do.
