US futures plunge as recession fears rattle global markets

United States stock index futures experienced a sharp decline on Monday, with Nasdaq-linked futures plummeting nearly 4%, as anxiety over a potential recession swept through global markets.

Investors reacted to troubling economic signals, sending stock markets in Asia and Europe tumbling while driving bond yields lower as they flocked to safer assets.

The downturn was particularly harsh for megacap and growth stocks, which had previously been pivotal in pushing indexes to record highs earlier this year. Notably, shares of Apple Inc. (AAPL.O) plummeted by 7.3% following Berkshire Hathaway’s (BRKa.N) decision to cut its stake in the tech giant by almost 50%.

This move raised concerns among investors about the overall health of the U.S. economy and the perceived overvaluation of stock markets.

Nvidia (NVDA.O) also faced a setback, with its shares dropping 6.8% amid reports of delays in the launch of its upcoming artificial intelligence chips due to design flaws.

By 4:33 a.m. ET, the Dow e-minis were down 613 points, or 1.54%, the S&P 500 e-minis fell by 117.5 points, or 2.19%, and the Nasdaq 100 e-minis were down 644.75 points, or 3.47%. Last week, both the Nasdaq 100 (.NDX) and the Nasdaq Composite (.IXIC) entered correction territory, driven by a weak jobs report and declining manufacturing activity in the United States, exacerbated by grim forecasts from major technology firms.

The disappointing job data triggered the “Sahm Rule,” a historically reliable recession indicator, leading traders to assign a 91.5% probability that the U.S. Federal Reserve would cut benchmark rates by 50 basis points in its upcoming September meeting. Analysts now project year-end rates to fall between 4-4.25%, down from the current 5.25%-5.50%, according to the CME’s FedWatch Tool.

Wall Street brokerages have also adjusted their forecasts for Fed rate movements in 2024, anticipating a more accommodative monetary policy.

“I am reluctant to believe the Fed would start the easing process with a 50 bps cut, but if the next seven weeks of data align with this week’s trends, the Fed should take aggressive action,” remarked Ronald Temple, chief market strategist at Lazard.

Throughout the week, several Federal Reserve officials are scheduled to discuss the economy and monetary policy, with any signals regarding interest rate cuts potentially easing investor concerns. Chicago Fed President Austan Goolsbee is set to speak at 8:30 a.m. ET, followed by San Francisco Fed President Mary Daly later in the day.

In a broader market context, futures linked to the small-cap Russell 2000 index fell by 3.7%. The CBOE Volatility Index (.VIX), often referred to as Wall Street’s “fear gauge,” surged past its long-term average level of 20 points last week, currently standing at 35.19—the highest level since May 2022.

The crypto market was also affected, with Bitcoin dropping to its lowest level in five months. Consequently, shares of crypto-related companies took a hit, with Coinbase Global (COIN.O) falling by 9.9%, U.S.-listed Bitfarms down 10.1%, Microstrategy sliding 12.8%, and Riot Platforms (RIOT.O) declining by 9.8%.