Stocks drop, Nasdaq confirms correction as recession fears mount
Fri August 2, 2024 4:39 PM
It was a second day when good inflation news, in this case a weak payrolls report, was seen as a recession predictor and thus sent all indexes into a freefall right out the gate with the S&P at its lowest in two months and the Dow and S&P each seeing their biggest two-day declines in 1-1/2 years. Add to that Amazon and Intel bringing in poor Q2 sending them down 8.8 and 26% respectively and the combo sent the Nasdaq down past the 10% mark, the official signpost of a correction. But the payrolls report proved the biggest trigger as, showing an increase in unemployment of slightly over 0.5% from the previous low, invoked the so-called Sahm Rule which says that any increase above 0.5% (in today’s case 0.53%) almost always immediately precedes recession.
(The graph dating back to 1970 demonstrates this, but it should
be noted that 3 times since 1970, this was not the case and an additional 4
times of 8 when the recession was very short-lived.) Claudia Sahm, herself, a
former Fed official who invented the indicator, has said that this year’s
circumstances are very unique so her metric may very well not be applicable
this time. The other good news is that the VIX also shot up to almost 30 before
falling back to 23, which triggered brokers advising their clients that a
sudden short-term jump in the VIX like that represented a good buying opportunity,
an indication that the sell off is not expected to continue. At 14.75 billion, volume was way above the
4-week average of 11.97 billion.
DJ: 40,347.97 -494.82 NAS: 17,194.15 -405.25 S&P: 5,446.68 -75.62 8/1
DJ: 39,737.26 -610.71 NAS: 16,776.16 -417.98 S&P: 5,346.56 -100.12 8/2
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