Global stock markets suffer steep declines amid investor concerns about potential US economic recession
Market Report: Global Stocks Take a Hit Amid Economic Concerns
In a week marked by economic uncertainty, global stock markets experienced a significant downturn. The Nasdaq fell by around 3.5%, while the S&P 500 dropped by more than 2%. The FTSE 100 is down 1.94% so far today, and Japan's Topix saw a dramatic fall of 12.23% today.
The US labour market data came in weaker than expected last week, with the unemployment rate increasing from 4.1% to 4.3%. The number of new applicants for unemployment benefits jumped to an 11-month high, contributing to these figures.
The US Purchasing Managers' Index showed that production stalled in July, and Chris Williamson, chief business economist at S&P Global Market Intelligence, stated that purchasing activity is falling and hiring has slowed amid concerns over weaker-than-anticipated sales.
These economic woes have been driven by multiple negative factors converging. Low GDP growth (only 1% in the first half of 2025), shrinking industry, a declining construction sector, and significant economic problems in key states like California and New York that together represent over 20% of the national GDP have all played a part. Additionally, restrictive immigration policies have exacerbated labor shortages, leading to a potential downward spiral of rising prices, reduced consumer spending, layoffs, and further economic contraction.
Fears of a recession in the United States have been further fuelled by the Federal Reserve's decision to hold rates at their current level for the eighth consecutive meeting on 31 July, with rates at a range of 5.25-5.5%. However, there is speculation about whether an emergency rate cut may be necessary before the Fed's next meeting on 17-18 September, as the US economy struggles.
Meanwhile, the Bank of Japan increased its benchmark rate to 0.25% on the same day, up from its previous range of 0-0.1%. The value of the yen has strengthened after years of providing cheap money to investors, causing disruption from unravelling 'carry trades'.
Despite the recent sell-off, some investors are questioning whether US equities have become too expensive, following reactions to earnings announcements from tech companies like Amazon and Alphabet. The US equities are currently trading at around 20 times the value of their earnings, and the S&P 500's market cap represents around 160% of GDP - an all-time high.
However, not all analysts are alarmed. Sam North, a market analyst at investment platform eToro, believes it is too early for investors to panic, pointing out that trends are more important than individual reports. He suggests that the recent drop in stock prices may be a temporary correction rather than the start of a longer-term downturn.
The rise in US unemployment was largely due to layoffs from Hurricane Beryl, which should reverse next month, according to North. This suggests that the economic picture may not be as dire as it seems, and that the current market volatility could be a short-term phenomenon rather than a sign of a deeper economic crisis.
In Japan, the recent downturn in equities has been more prolonged, with the Topix down more than 6% year-to-date. The impact of the Bank of Japan's rate hike remains to be seen, but it is clear that global markets are facing significant challenges in the coming months.
