Markets are in a panic: American and Japanese indices have suffered a crushing defeat

Fear is sweeping stock markets everywhere: American and Japanese indices have suffered a crushing defeat, the same happened with banks and gold. This is reported by The Economist magazine.

Now stock markets are in free fall, the newspaper writes.

The US Nasdaq 100 index, dominated by technology giants, has fallen by more than 10% since its peak in mid-July. The Japanese benchmark Topix index suffered double-digit losses, falling by 6% only on August 2. Stock prices in other countries have not suffered as much, but panic is sweeping the markets: Wall Street's "fear indicator", the VIX index, has soared to the highest level since the regional banking crisis in America last year.

The situation looks even wilder if you look at individual sectors and firms.

"The Philadelphia semiconductor index, which tracks companies in the supply chain of chips around the world, fell by more than a fifth in a matter of weeks. Arm... has lost 40% of its market value. The stock price of Nvidia, the favorite of the previous bull run, fluctuated. In the three days since July 30, it fell by 7%, soared by 13%, then fell again by 7%. On August 2, the value of Intel, another chip manufacturer, fell by more than a quarter. And this applies not only to the semiconductor industry. The index of shares of American banking companies KBW fell by 8% in a matter of days. Stock prices of Japanese banks also fell sharply," the article says.

It is noted that investors in horror rush into various "loopholes" — gold, Japanese yen and US treasury bonds. However, on August 2, even the price of gold fell sharply — from peak to minimum by more than 2%. Perhaps investors were selling because they needed to raise cash in a hurry to meet margin requirements elsewhere. Then there is a risk that other mass sales and a self-reinforcing cycle of death may follow, the magazine writes.

It is noted that three events led investors to the fact that they were over the edge.

First, there are unrealistically high hopes for the field of artificial intelligence (AI), especially the chip manufacturing industry. The largest fluctuations in US stock prices occurred at five technology giants — Alphabet, Amazon, Apple, Meta* and Microsoft. Thus, the previous euphoria of investors about AI is evaporating, which suggests an "immediate domino effect for chip manufacturers": if investments in AI are reduced, they may lose demand for their products.

The second event that caused investors to panic was the slowdown in the US economy and the weakening of the labor market. On August 2, a report on employment in America was published, showing that the unemployment rate rose to a three-year high of 4.3% in July, while the economy added only 114 thousand jobs, with a consensus forecast of 175 thousand. That is, the risk of a recession, which, as many believed, was avoided, has only increased.

The third is the strengthening of the Japanese yen: in recent weeks it has strengthened against a basket of currencies at almost the fastest pace in two decades.

"A rising yen automatically reduces the quotations of Japanese stocks, as many of the country's largest companies operating around the world, such as Hitachi, Sony and Toyota, make profits abroad in foreign currency ... the rapid strengthening of the yen increases the dollar value of debt repayment, pushing trade into negative territory. The sharp movements of the last few weeks have forced many investors to close their positions and possibly also urgently sell other assets, increasing instability in both domestic and global stock markets," the magazine notes.

"The first question now is whether... the price of an asset has swung sharply enough to jeopardize a company that is highly exposed to its influence. On this front, the decline in gold prices and banking stocks is ominous. Another related question is whether next week will be better or worse. Let's assume that no major investor decides that it's time for a stock sale that will match the mood of the team. Judging by the recent form, this is not good," the publication concludes.

*Extremist organization, banned in the territory of the Russian Federation