A red wave swept through global markets during Monday’s trading session, extending the same picture from Friday. Fears of a potential U.S. recession prompted investors to flee from risky assets, leading to a sharp sell-off in equities across both Western and Eastern markets.
Growing tensions in the Middle East have further dampened investor sentiment, with analysts concerned that Israel's war against Palestinians in Gaza, which began last October after attacks on the Jewish state, could escalate into a wider conflict involving more nations.
The Nifty 50 plummeted 824 points, falling below 24,000 for the first time since June 26. Today's drop also marked the largest intraday decline since June 4, when the Lok Sabha results fell short of exit poll predictions. S&P BSE Sensex tumbled 2,686 points to 78,295 points.
All sectoral indices are trading in the red, with Nifty Realty experiencing the steepest decline of 5.2%, followed by Nifty Metal and Nifty PSU Bank, which dropped by 5% and 4.9%, respectively.
The sell-off began on Friday after the U.S. economy revealed signs of weakness for June. Manufacturing activity contracted at its fastest rate since December 2023, job growth slowed significantly, and the unemployment rate unexpectedly rose to 4.3%, the highest level since October 2021.
Recent data have sparked concerns about a potential recession, leading to criticism of the Federal Reserve’s decision to maintain high interest rates for an extended period. Economists argue that the Fed should have lowered rates last week to bolster the economy, given the weakening labor market.
On July 31, the Fed kept interest rates steady at a 23-year high of 5.25%–5.50% for the eighth consecutive meeting in 2024, as anticipated. Despite this, Jerome Powell hinted at the possibility of a rate cut as early as September.
Even if the Fed does lower rates in September, current high rates have already made borrowing costlier for consumers, affecting home, car purchases, and credit card use. The impact of any rate cut might take several months to a year to be fully felt in the economy.
Following today’s market downturn, many economists expect the Fed might implement a rate cut before the September meeting to stabilise the markets.
Apart from Indian stocks, Japan's Nikkei shed a staggering 9% to hit 8-month lows, entering bear market territory and marking its biggest three-session loss since the 2011 financial crisis.
Share prices have been falling in Tokyo since the Bank of Japan raised its benchmark interest rate on Wednesday.
The Nasdaq index, heavily influenced by tech stocks, has entered correction territory during Friday's trade, and it is currently down more than 10% from its record high. Meanwhile, the S&P 500 and Dow Jones are 5.7% and 3.9% below their all-time highs, respectively.
Commenting on today's market performance, Tanvi Kanchan, Head, UAE Business & Strategy, Anand Rathi Shares and Stock Brokers, said, "This sell-off is more of a short-term volatility by way of profit booking and is no indicator of any long-term panic mode set in the Indian equities. For investors looking at entering the equity market, a staggered entry during volatile periods can be considered."
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
