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U.S. stocks opened low and ended high.

On August 5, the three major U.S. stock indexes opened lower. The Dow Jones Industrial Average fell 2.67%, the Nasdaq fell 6.36%, and the S&P 500 fell 4.10%. As of press time, the declines of the three major stock indexes narrowed, with the Dow Jones Industrial Average down 2.66%, the Nasdaq down 4.22%, and the S&P 500 down 3.27%.

The three major U.S. stock indexes opened lower collectively, and Black Monday is not over

On August 5, the three major U.S. stock indexes opened lower. The Dow Jones Industrial Average fell 2.67%, the Nasdaq fell 6.36%, and the S&P 500 fell 4.10%. In terms of sectors, all 11 sectors of the S&P 500 index opened lower, with information technology and non-essential consumer goods sectors leading the decline.

The "Seven Big Tech Companies" in the U.S. stock market all fell sharply at the opening, with Apple down 9.6%, Microsoft down 4.8%, Nvidia down 14.3%, Google down 6.5%, Amazon down more than 8%, Meta down 7.18%, and Tesla down more than 10.85%. As of press time, the total market value of the above seven technology companies has decreased by $1.29 trillion, of which Apple fell by $321 billion and Nvidia fell by $378 billion.

In addition, major European stock indices also fell across the board. FTSE Italy MIB fell more than 3%, while UK FTSE 100, German DAX30, French CAC40, Euro Stoxx 50 and Spanish IBEX35 all fell more than 2%.

The employment data released last Friday showed that the number of non-farm payrolls in the United States increased by 114,000 in July, compared with 206,000 in the previous month; the unemployment rate rebounded to 4.3%, compared with 4.1% in the previous month, which was significantly lower than market expectations. As concerns about the slowdown in the US economy intensified, traders increased their bets that the Federal Reserve would take emergency interest rate cuts.

The CME FedWatch tool showed that before the release of non-farm payrolls, the probability of a 50bp rate cut in September was only 11.5%, but on Sunday, the probability rose sharply to 70%. As of the opening of the U.S. stock market on Monday, the probability continued to rise to 94%.

(Probability of the Federal Reserve cutting interest rates in September. Source: CME FedWatch tool)

Fed's Goolsbee said the July employment report represented only "one number" and it was not the Fed's job to react to one month's employment data. The Fed could wait for more data before its September meeting. Options, including rate hikes and rate cuts, have been on the table. If the economy deteriorates, the Fed will take steps to fix it.

"The Fed needs to lower interest rates." Musk wrote on X on August 4, local time. "It's stupid that they haven't done so yet (lower interest rates)."

Musk made the comments in response to a post on X that said billionaire investor Warren Buffett's Berkshire Hathaway increased its reserves of cash equivalents and short-term Treasury bills after cutting its stock positions, including its largest holding, Apple, by 50%. "He (Buffett) obviously expected some kind of correction, or just thought there was no better investment than U.S. Treasuries," Musk said.

Meanwhile, the dollar continued to weaken, with the 10-year Treasury yield falling to its lowest level in a year. Wall Street's fear gauge, the CBOE Volatility Index, surged to its highest level so far in 2020.

JPMorgan strategists said stocks are likely to remain under pressure from slowing economic activity, falling bond yields and lower earnings expectations. "We remain cautious about stocks and expect a 'bad news is bad news' phase to come," Mislav Matejka said in a report. "Against this backdrop, risk trading should not be done. The market should be driven purely by defensive sectors." JPMorgan strategists noted that the Federal Reserve will begin to ease policy, but will act more in a reactive way in response to weak growth, which may not be enough to drive a stock market rebound.

"There are two things that are affecting market pricing. One is the risk of a recession, which is the main concern, but in addition to that, there is some anxiety around geopolitics," said Sammy Char, chief analyst at Lombard Odier. "First, the economic situation in the United States is still acceptable because we have not seen an increase in layoffs and job cuts. The data released last Friday was indeed not good, but we need to be open to the possibility of job growth of around 150,000 to 170,000 jobs next month. The current market pricing went a little far on one side and then reversed to the extreme, so the market volatility has been extreme because the pricing has been extreme."

Recession fears roil U.S. stocks

Concerns about an imminent U.S. recession have caused a sharp drop in U.S. stocks recently, as weak economic data has triggered a rush for safe-haven assets. A series of lackluster earnings reports from large technology companies also weighed on market sentiment.

According to Dow Jones Market Data, the stock market's retreat on Friday put the tech-heavy Nasdaq Composite Index into correction territory, which is typically a drop of at least 10% but no more than 20% from a recent high. A bear market begins after a correction of at least 20%.

Data showed that the S&P 500 fell 2.1% last week, its biggest weekly drop since early April. At the same time, the Dow Jones Industrial Average also fell 2.1%, its worst week in more than two months.

Faced with sudden and large fluctuations, investors want to protect their portfolios from the impact of the economic slowdown and begin to consider withdrawing from popular technology stocks and investing in defensive stocks. Defensive stocks usually provide continuous dividends and stable income regardless of the state of the US economy. However, Wall Street analysts said that considering that the overall market may continue to fluctuate sharply for the rest of the summer, the benefits of rotating into "safer stock sectors" may be very limited for investors.

“We saw money moving out of overvalued tech stocks and into the broader market in July, but over the past few days, money has been moving out of all sectors, not just the ‘big seven,’” said George Ball, CEO of Sanders Morris Harris LLC. “The gains from moving into safer sectors are not huge, and the risks of staying in volatile areas are getting bigger.”

But some analysts said investors may have overreacted to a string of weaker-than-expected economic data and that last week’s sell-off may have been overdone.

“It seems like last Friday was a sign of overselling by investors as people sold the good stocks along with the bad stocks,” said Kinahan, CEO of IG North America and president of Tastytrade. “I think it’s more of a general reassessment and review of equity values.”

And it's not just regular investors who are panic-selling. On Saturday, Warren Buffett's Berkshire Hathaway disclosed that it had halved its stake in Apple in the second quarter, while boosting its cash position to a record $277 billion and buying Treasury bonds.

SEC documents show that Nvidia CEO Jensen Huang also sold a total of 372,000 shares of Nvidia stock in 31 times between June 13 and August 1, cashing in a total of more than US$470 million.

Editor: Ye Shuyun

Proofreading: Yao Yuan

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