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"Black Monday" swept the global stock markets, and almost wherever the market opened on Monday, the market would continue to fall.

Japan led the decline in Asia, with the Nikkei 225 stock average price index falling by 12.4%, a record drop, even worse than the situation after the "Black Monday" on Wall Street in 1987. In Tokyo securities companies, phone calls from investors kept ringing, knocking on the heads of traders.

After Japan, South Korea's Kospi index fell 8.77%, Hong Kong's Hang Seng index fell 1.46%... The entire Asian region was in mourning. The European market was also in poor condition, with London's FTSE 100 index falling to its lowest point in more than three months.

The United States was also not spared. As soon as the market opened on August 5, the "Big Seven" U.S. stocks (includingapple、Microsoft、Nvidia、Tesla,Google,Amazon, Meta) fell, and Nvidia's decline once reached 14.3%. At the close of trading, the decline narrowed, but it was still not optimistic. Nvidia closed down 6%. The market value of the "Big Seven" evaporated nearly $650 billion overnight.

As of the close of the market on the 5th, the Nasdaq Composite Index fell 3.43%; the S&P 500 fell 3.00%; and the Dow Jones Industrial Average fell 2.60%. The latter two recorded their largest single-day declines since September 2022.

What is more intuitive is that when "Black Monday" arrived, facing the falling stock market, some retail investors found that they could not log in to the online trading software - users rushed to trade and the online platform collapsed.

“What’s more frightening than the fact that the market is selling off is that Fidelity andCharles SchwabThe (Schwab) trading platform crashed today.”

“Those are the things that really cause panic when people can’t see what their portfolios are doing.”

That same day, Fidelity and Schwab announced they had resolved the technical issues with the app.

In addition, global technology giants who are usually active on social media, such as Elon Musk and Mark Zuckerberg, have remained silent so far during this stock market turmoil. This abnormal behavior may be telling of the seriousness of the situation.

The good news is that in the morning of August 6, the three major U.S. stock index futures rose collectively, and the Nasdaq 100 index futures rose by 2%. The Nikkei 225 index futures hit the circuit breaker upward. After the opening of the Japanese stock market, the Nikkei 225 index continued to rise, and as of 11:00 a.m. Beijing time, it rose by more than 9%. The Korean stock market's composite stock price index opened up 3.76%, and the Korea Venture Index (KOSDAQ) futures soared, triggering the "SIDECAR" suspension mechanism, and the program trading buy orders were suspended for 5 minutes.

Whether this "Black Monday" is over or just the beginning remains unknown.

A

"Black Monday" began brewing last week.

In other words, to understand what exactly happened on this "Black Monday", we have to mention several key events that happened last week: disappointing US manufacturing data and employment reports, the continuous decline of technology giants, and Buffett's reduction of Apple shares.

Let’s first talk about the US manufacturing data and non-agricultural employment report.

On Thursday, August 1, local time, data released by the Institute for Supply Management (ISM) of the United States showed that the ISM manufacturing index in the United States in July was 46.8, below the "watershed of prosperity and recession". Among them, the new order index, production index and employment index were all lower than expected. The overall contraction was the largest in eight months, with new orders and output declining.

Then, on Friday, August 2, local time, the U.S. July non-agricultural employment report once again exacerbated the disappointment. The most important figure is that the U.S. unemployment rate rose to 4.3% in July, the highest point since the epidemic.

The unemployment rate of 4.3% is not a historical high. The figure in the United States reached 10% after the global financial crisis. The problem is that it triggered the "Sam Rule".

The Sahm Rule recession indicator was proposed by Federal Reserve economist Claudia Sahm, which means that if the unemployment rate (based on a three-month moving average) rises by 0.5 percentage points from last year's low, then a recession has begun. If this indicator is applied, the forecast of an economic recession has never failed since 1970, with an accuracy rate of 100%.

Even Sam himself said on Monday: "This rise in unemployment is consistent with past 'early recessions.' We may not be there yet, but we are starting to get very close to that, which is worrying."

There are other worrisome economic signs. The two-year Treasury yield rose to 3.746%, almost approaching the 10-year yield of 3.678%, MarketWatch reported. An "inverted" yield curve, where short-term yields are higher than long-term ones, is a widely watched recession indicator.

Putting aside the macro data, another piece of bad news last week was that the technology giants that have been making great strides in the field of artificial intelligence released their earnings reports last week, but the market reaction was not very good and the giants were ruthlessly sold off.After Microsoft released its earnings report, its stock price fell 8.2% in three days. After Amazon released its earnings report, it closed down about 8.8% on the same day. After Apple released its earnings report, its after-hours decline exceeded 1%. Nvidia will not release its new earnings report until later this month, but its stock price continued to fall last week, falling 3.8% from Monday to Friday, and has fallen 20% from its high point in June.

In this context, a piece of news came that Warren Buffet’sBerkshireHassawi Holdings disclosed that it reduced its stake in Apple by 13% in the first quarter, and at the end of the second quarter, its stake was nearly halved from 789 million shares in the first quarter to about 400 million shares.

Not only did it reduce its holdings in Apple, Berkshire has sold more stocks than it bought for seven consecutive quarters, and its cash reserves have reached $276.9 billion, a record high. Bloomberg commentator John Authers revealed that when the news came out, he received emails from many people who were "quite annoyed" with Buffett.

Berkshire's sale should not have had a major chain reaction, but the fact that the most respected investor left one of the "Big Seven" and chose to hold an unprecedented $276.9 billion in cash has somewhat fueled the public's panic.

B

Under the influence of multiple factors, people are increasingly worried that the United States will fall into an economic recession.

last weekend,Goldman SachsEconomists at Bloomberg News cited an increase in recession risks in a note to clients, raising the odds of a recession in the next 12 months to 25% from 15%. Analysts said one concern is the slow-moving Federal Reserve. The Fed has raised interest rates sharply over the past two years to control inflation, sparking concerns that it could hamper the economy. At its most recent meeting, the Fed kept interest rates unchanged, though a rate cut is possible in September.

“The fear comes from weak jobs data, which points to a recession, and the Fed staying elevated for too long,” said Michael Farr of Farr, Miller and Washington, an investment firm in Washington.

The panic that had been building up finally burst out on Monday.

Due to the time differences around the world, the arrival of "Monday" also varies. Wherever Monday falls, the stock market there will be "controlled" by fear.

The decline started in Asia, with Japan leading the decline.On August 5, local time, the Nikkei 225 stock average price index closed down 4,451 points, a drop of 12.4%, setting a historical record, exceeding the drop on the second day of the "Black Monday" crash in the US stock market in 1987. On the morning of the 5th, the Osaka Stock Exchange triggered the circuit breaker mechanism to suspend the trading of Topix index futures. The last time such a situation occurred was after the Great East Japan Earthquake in March 2011. In the afternoon, the Nikkei stock index futures also triggered the circuit breaker mechanism.

JapanFujiThe news network described that on this day, market participants and investors were in chaos. At securities companies in Tokyo, calls from investors kept ringing and staff were overwhelmed to cope with them.

"Sentiment in Asia has soured," said Stephen Innes of SPI Asset Management in his Dark Side of the Boom newsletter.There are concerns about economic recession, as well as the Bank of Japan's interest rate hikes. "These factors combined have become a perfect recipe for a market crash."

The Wall Street Journal pointed out that market fluctuations that usually take months or years occurred in a few days because investors responded to developments in the United States and Japan. For many years, global investors rushed to buy assets such as U.S. stocks due to Japan's rock-bottom interest rates and funded these transactions with yen, a strategy also known as carry trades. However, last week, the Bank of Japan raised interest rates, causing the yen to appreciate by about 7.6% against the dollar in the past week. As the yen soared, investors who borrowed yen were hit by margin calls.

Ben Bennett, head of Asian investment strategy at Legal & General Investment Management, a European asset management company, said: "Investors started to close their positions at the end of last week, but as the yen strengthened and the Nikkei fell, more and more investors were forced to close their positions and entered a one-way market today."

JPMorganMarcela Chow, global market strategist at the asset management firm, said the market will likely focus on the Federal Reserve's policy in the United States, which will affect the dollar-yen exchange rate and the stock market.

Jesper Koll, senior analyst at the Japan Optimist newsletter, said Japan is dependent on the United States both economically and financially: "In global financial markets, everything starts with the United States: The dollar's upcycle is coming to an end as the risk of a U.S. recession rises. Don't fight it. Warren Buffett just raised his cash holdings to an all-time high - he expects to be able to buy at lower prices in the future. Japanese investors will follow his lead."

After Japan, the entire Asian region reported grim data: South Korea's Kospi index fell 8.77%; Hong Kong's Hang Seng Index fell 1.46%.

European markets also "followed up". London's FTSE 100 index fell more than 2% to its lowest point in more than three months, and the share prices of European technology and semiconductor stocks also fell sharply.

As Monday arrived in the United States, the shocking decline began.

The three major U.S. stock indices fell sharply at opening, with the Dow Jones Industrial Average down 2.7%, the S&P 500 down 4.2% and the Nasdaq Composite down 6.3%.

Among them, technology stocks were hit hard, and the "Big Seven" of US stocks fell sharply at the opening. Apple fell 9.6%, Nvidia fell 14.3%, Microsoft fell 4.8%, Google fell 6.5%, Amazon fell more than 8%, and Tesla also fell more than 10%.

At the close, the good news is that the declines of the S&P 500 and Nasdaq 100 narrowed, but the bad news is that the situation is still not optimistic. For example, the S&P 500 closed down 3%, the largest single-day drop since September 2022. In addition, the VIX index, an indicator of U.S. stock volatility, soared, reaching its highest level since the beginning of 2020 (when the epidemic broke out).

Matthew Rowe, head of cross-asset strategy at Nomura Capital Management, said there is still a lot of uncertainty in the future in terms of monetary policy, geopolitics, election results, etc. "Due to the low liquidity in the summer, there are still a lot of trend trades that need to be closed and the VIX index is high, this sell-off may continue for a few days."

C

This "Black Monday" is not just about the stock market, its shadow has spread to other areas.

Bitcoin fell from nearly $62,000 on Friday to around $52,000 on Monday. Even gold, which often provides safety in turbulent times, fell 1%.

Faced with such a large-scale tragedy, some analysts believe that the fear is excessive.

“Market panic appears to be out of proportion,” Gregory Daco, chief economist at EY, wrote in a note to clients on Monday. “In our view, the core problem is that the Fed is behind the curve in both action and thinking, rather than a significant economic downturn.”

Joseph Brusuelas, chief economist at RSM US, said it was a "classic market panic," adding that it was important to remember that the market is not the economy.

Other analysts believe that the focus is on the excessive rise in stock prices over the past period of time, especially for technology companies.

“I’m not entirely convinced that the market voted overnight for a completely weaker economy ... I think it’s going to take a little longer to be felt,” said Kevin Gordon, senior investment strategist at Charles Schwab. He noted that sectors like consumer staples and utilities have led the market since the market’s peak in July, with the biggest losses coming in the technology sector.

Citigroup U.S. equity strategist Drew Pettit agreed with Gordon, seeing the market action as a continuation of a recent trend -- with investors taking profits from high-flying tech stocks through much of 2023 and 2024 and moving into other parts of the market that are less reliant on growth.

“This is more about selling high-priced stocks and taking some profits... This is not a complete breakdown of the cyclical trade.”

The stock market surge this year has been fueled in part by artificial intelligence, but critics say share prices have risen faster than corporate profits and that the stock market "looks expensive."

There are only two ways to make the stocks of technology giants look less expensive: one is for the stock price to fall, and the other is for the company's profits to catch up. But as technology giants release their new quarterly performance reports, the companies' promises of profits from artificial intelligence seem increasingly unreliable.

Whether it is Google, Microsoft or Amazon, this earnings season has been lackluster in terms of AI returns. Admittedly, their cloud business units have shown steady growth, but this is not enough to appease investors. At the same time, Meta and Microsoft have made it clear that they expect to continue to increase asset spending, naturally due to AI research and product development.

It is still unknown whether Black Monday has passed or has just begun.

Intelligencer, an online news website in the United States, pointed out that many economists believe that Monday's sell-off was a bit excessive, and that it was fear that triggered the sell-off, rather than the rational view that a recession would come. But even so, there is still a possibility that there are other problems that have not yet surfaced. For example, some hedge funds or banks hold too expensive yen, or Nvidia stocks that have now plummeted, and it is too late to sell. If a large fund goes bankrupt, it will have a bad chain reaction.

“It’s a question of who bought a lot of tech stocks at the wrong time. It’s early in the month, so it may take a few weeks to see the real harm.”