Stock Market News for Aug. 5, 2024: Why the Stock Market Tumbled Today; Dow, S&P 500, Nasdaq Plummet on Recession Fears; Japan's Nikkei Drops 12%, Worst Day Since Black Monday Crash; Treasury Yields (2024)

What Happened Today

The technology sector once again led the declines, with the Mag Seven group of stock shedding hundreds of billions in market value today alone. That group of stocks has propelled the market higher and is ripe for profit-taking amid the panic.

Fears that the U.S. is at risk of recession after Friday's weak jobs report triggered mayhem across global markets. Tokyo’s Nikkei 225 plunged a staggering 12.4%, its biggest one-day percentage drop since October 1987, the Black Monday crash.

The yen strengthened as much as 3% against the dollar, a stomach-churning move that is contributing to the blowup of the popular yen-carry trade. The unwinding of that trade is causing selling pressure in tech, another factor in today's selloff.

Traders, fearing that the Federal Reserve has waited too long to cut interest rates and that the economy is already in a downturn, flocked to the safety of U.S. government debt. The market's so-called fear index surged to its highest level since 2020. A slowing economy would create challenges for companies' earnings.

The Nikkei 225 index opened Tuesday morning's trading session in Tokyo up 2%, and was moving higher.

The move follows a 12% drop for the index in Monday's session, the worst day for Japanese stocks since the Black Monday crash in 1987. Friday's weak jobs report in the U.S. triggered the selloff, which then sparked a global rout on Monday. U.S. stocks plummeted, with the S&P 500 falling 3% and the Nasdaq Composite dropping 3.4%.

Traders worry the Federal Reserve has waited too long to cut interest rates and that the U.S. economy is in recession. That added to concerns that the Magnificent Seven stocks have gained too much, too fast. And then there is the surging yen, triggered by the Bank of Japan's higher interest rates, which is causing a popular trade to unwind.

All that said, investors are watching Japan's Tuesday session now for clues to how U.S. equities will open in New York tomorrow morning.

The bigger they are, the harder the Magnificent Seven will fall.

The group of megacap technology stocks collectively shed $653 billion in market cap on Monday, according to Dow Jones Market Data. That was the group's largest one-day decline since a $744 billion decline from July 24.

Of the seven, Nvidia was down the most at 6.4% or $167 billion in market cap. Apple stock was down 4.8%, while Alphabet was down 4.5%. Tesla was down 4.2%. Amazon.com shares were down 4.1%, while Microsoft was down 3.3%. Meta Platforms held up the best of the group with a decline of 2.5%.

The Magnificent Seven got their name for the staggering gains the group of major tech firms delivered to the stock market in the past couple years, even when other parts of the market were struggling. The latest wave of Big Tech earnings reports disappointed, though, which didn't provide much of a cushion from the latest flow of broader recession fears hitting equity markets.

The S&P 500 and Dow marked their worst days since 2022 as stocks slid in response to rising fears about a recession, geopolitical uncertainty, and a surging Japanese yen.

The S&P 500 fell 3%, while the Dow Jones Industrial Average shed 1,033 points, or 2.6%. The Nasdaq Composite fell 3.4%.

For the S&P 500 and Dow, it was the biggest one-day percentage drop since 2022. For Nasdaq it was the worst drop since late July.

Bond yields initially sank to start the day, but the 2-year Treasury yield finished the day up to 3.88%. The 10-year yield dipped to 3.782%.

The CBOE Volatility Index, or VIX, soared as high as 65.73 but was recently at a still-elevated 38.76 reading. The VIX crossed 50 for the first time since 2020.

Traders continued to react to last week’s soft economic data that called into question the market’s previous indifference about signs of an economic slowdown.

Technology stocks were hit especially hard as traders fled highflying Big Tech and AI plays, but all the major S&P 500 sectors fell more than 1% for the first time since November 2022.

The Japanese yen also soared following last week’s rate hike by the Bank of Japan, which likely led to an unwinding of the popular yen-carry trade.