Dow and S&P Post Biggest Single-Day Decline of 2022 on Monday

On Monday, August 5, the U.S. stock market ended the tumultuous day on a low note. The three major indexes plunged by about 3%, with both the Dow and the S&P marking their largest single-day declines since 2022.

The Dow Jones Industrial Average plummeted by 1,034 points, a 2.6% drop, while the S&P 500 index fell by 3%, and the Nasdaq Composite index dropped by 3.4%.

According to FactSet data, Monday marked the 15th time the Dow fell by over 1,000 points in a single day.

Concerns over a slowdown in the U.S. economy triggered shockwaves in the global markets. Last Friday (2nd), the U.S. released its July employment report, which fell well below expectations, leading to the stock market decline. Earlier on Monday, the Japanese stock market witnessed its largest single-day decline since 1987.

Downdetector reported technical glitches on popular online trading platforms like Fidelity, E-Trade, and Robinhood as investors rushed to sell off stocks.

Based on CME’s FedWatch tool, traders expect an 85% likelihood that the Fed will cut interest rates by half a percentage point at the September meeting.

CNN reported that experts, including renowned Wharton School finance professor Jeremy Siegel, are calling for an emergency rate cut by the Fed to prevent the U.S. economy from slipping into a recession. The last time the Fed took such action was in March 2020 during the beginning of the COVID-19 pandemic.

However, some economists and investors believe that the market may have overreacted to recent economic data.

Jack Janasiewicz, Chief Portfolio Strategist at Natixis Investment Managers, stated in a report last Friday that while the July employment data indeed indicates a slowdown, “slowing down and stalling out are two different points.”

He advised that while stock market declines can have a significant psychological impact, investors need to step back and look at the fundamentals as the U.S. economy’s fundamentals are still sound.

The stock sell-off in the U.S. market on Monday coincided with significant drops in U.S. bond yields and a surge in the Wall Street Fear Index (VIX).

The VIX surged by 181% at one point on Monday, marking the largest intraday increase in history before retreating to around a 40% daily gain.

Market Watch reported that Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services, noted that Monday’s pattern was the VIX surge, creating a tug-of-war between fear and greed that everyone is caught in.

On Monday morning, Chicago Fed President Austan Goolsbee made a public statement on the U.S. economy. As a member of the Fed’s interest rate meeting, he is considered dovish.

Regarding the July employment report, he referred to it as “a number,” stating, “as you can see, the employment data fell below expectations, but it doesn’t look like a recession.”

Historically, even when facing significant sell-offs, the Fed has refrained from taking action as officials are wary of whether a credit market decline or malfunction may lead to a decline in household and business spending.

CNN reported that San Francisco Fed President Mary Daly said on Monday afternoon that there are concerns about whether the U.S. economy will “continue to deteriorate, transitioning from soft to sluggish,” but “we’re not seeing that now.”

She made this statement during an event hosted by the Hawaii Business Development Corporation on Monday.

“We are slowing down, but we’re not going off a cliff,” she added, noting that from recent conversations with businesses, “companies are not laying off employees, just slowing down hiring.”

She mentioned that if the economic situation worsens, more layoffs can be expected.

While Daly deemed an interest rate cut at the next meeting by the Fed as warranted, she declined to reveal her views on the appropriate magnitude of the rate cut.