Recession Fears Spark Market Turmoil: Tech Stocks Plunge, Safe-Haven Bonds Surged

The release of weak U.S. employment data stoked recession fears, leading investors to shift from stocks to safe-haven bonds. Treasury prices spiked, oil prices fell, and tech stocks suffered significant losses. The data increased expectations of multiple Federal Reserve rate cuts, impacting global markets severely.

Unexpectedly weak U.S. employment data released on Friday heightened recession worries, prompting investors to abandon stocks in favor of safe-haven bonds.

As Treasury prices soared, bringing yields to multi-month lows, oil prices also dipped by $2 a barrel. The dollar index plummeted to its lowest level since March.

Technology firms, which are highly valued, faced significant hardships. The European bank stocks index experienced its largest weekly decline in 17 months, and the stock market volatility measure, VIX, surged over 40%.

The U.S. jobs report indicated that job growth in July was slower than expected, and unemployment rose to 4.3%, signaling potential labor market weakness and heightened recession vulnerability. With discouraging earnings from Amazon and Intel and softer U.S. factory activity survey data, investors were already jittery.

Markets are now anticipating multiple rate cuts by the Federal Reserve this year. Despite leaving rates unchanged just this week, there are expectations that the Fed may reconsider its stance, possibly even cutting rates by 50 basis points next month.

Imminent summer trading is likely to exacerbate market moves. The slump, beginning with Japan's Nikkei dropping 5.8%, has extended through Europe to Wall Street.

Leading global stock indices fell significantly: MSCI's global index dropped 2.43%, the Nasdaq Composite was poised for a correction at 3.26%, while the Dow Jones and S&P 500 saw significant decreases. In Europe, the STOXX 600 fell nearly 3%, with financial and technology shares most affected.

Emerging market stocks and the broadest index of Asia-Pacific shares outside Japan also posted losses. Japan's Nikkei experienced its biggest daily drop since March 2020.

The Federal Reserve has maintained borrowing costs at a 23-year high, but some analysts believe that prolonged tight monetary policy risks causing a recession. On Friday, money markets quickly priced in a 70% chance of a sizable rate cut by the Fed next month.

The weak employment report implies that the economy could swiftly change direction, and this might compel the Fed to implement a more substantial rate cut.

Intel shares plummeted to an 11-year low following its dividend suspension and job cut announcements. Nvidia, a major tech rally contributor, also suffered losses.

Investors are fleeing to safe-haven assets like government debt, gold, and stable currencies. The yield on the U.S. 10-year notes declined significantly, and the yen appreciated notably. In the commodities sector, despite some profit-taking, gold prices remain elevated, while oil prices continue their downward trend.

(With inputs from agencies.)