US Markets Plunge as Volatility Soars and Recession Fears Mount

Global markets began the week with significant selloffs, marked by the largest one-day increase in volatility ever recorded. Equity futures and cryptocurrencies also dropped sharply, echoing past financial crises. While no single event triggered this, Friday’s disappointing U.S. jobs report for July played a major role.

On Monday, U.S. stocks fell substantially, with the Nasdaq and S&P 500 each losing over 3%, extending last week's decline due to recession fears and a sharp drop in Apple shares after a major investor reduced its stake. However, U.S. stock index futures saw a modest recovery later that evening, helped by bargain buying in the tech sector.

Weak economic data, including a soft U.S. payrolls report, spurred recession fears, causing investors to flee risky assets. Concerns that the economy is slowing faster than expected and that the Federal Reserve may have erred by not adjusting interest rates added to market anxiety.

The Cboe Volatility Index (VIX), a key measure of market volatility, experienced its largest intraday jump ever on Monday, closing at its highest since October 2020. This spike in the VIX was driven by several factors, including traders scrambling to hedge against market swings and poor trading liquidity.

The recent market volatility follows a long period of calm, with the S&P 500 previously avoiding a 2% or larger decline for 356 sessions—the longest such streak since 2007. This stability had encouraged “short-volatility” strategies, which suffered as market conditions changed.

Despite recession fears, Chicago Fed President Austan Goolsbee downplayed these concerns but emphasized the need for the Fed to remain adaptable. The U.S. services sector showed signs of recovery in July, which slightly eased losses.

Traders are now heavily betting on a rate cut by the Fed in September. The selloff particularly affected the "Magnificent Seven" group of stocks, which had driven indexes to record highs earlier this year. Notably, technology stocks were hit hard, with Apple shares dropping 4.8% after Berkshire Hathaway halved its stake. Nvidia rose 2.4% after previously dropping over 6% due to a report of a design flaw delaying its latest AI chip. Alphabet rose slightly after falling 4.5%, following a court ruling that it violated antitrust law with its search engine. Pringles maker Kellanova soared 16.2% after a Reuters report indicated that candy giant Mars was exploring a potential buyout of the company.

U.S. bank stocks also fell, with major indexes for bank stocks declining notably. Higher interest rates and a crisis of confidence from the previous year have kept investors wary of the sector. Potential rate cuts might benefit mid-sized banks by reducing funding costs and stimulating loan demand.

High-profile earnings reports and volatile oil prices, driven by recession fears and geopolitical risks, are in focus this week. Although many mega-cap companies have already reported, several significant earnings are still expected. Reports from industrial leader Caterpillar Inc, Uber Technologies Inc, entertainment giants Walt Disney Company and Warner Bros Discovery Inc, will provide insights into manufacturing and consumer health. Additionally, healthcare heavyweight Eli Lilly and Super Micro Computer, offering key insights into AI industry demand, will release their earnings.

Data for Technical Analysis (1H) CFD US30 DJIA

Resistance : 39116.7, 39157.6, 39223.6

Support : 38984.7, 38943.8, 38877.8                  

1H Outlook  

Source: TradingView                         

Buy/Long 1 If the support at the price range 38784.7 - 38984.7 is touched, but the support at 38984.7 cannot be broken, the TP may be set around 39134.9 and the SL around 38684.7, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 39116.7 - 39316.7, TP may be set around 39450.0 and SL around 38884.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 39116.7 - 39316.7 is touched, but the resistance at 39116.7 cannot be broken, the TP may be set around 38962.0 and the SL around 39416.7, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 38784.7 - 38984.7, TP may be set around 38610.0 and SL around 39216.0, or up to the risk appetite.       

Pivot Points Aug 6, 2024 02:36AM GMT