A word of advice for easing yourself out of holiday mode and into the work week this morning: Don’t check your RRSP.
What happened: Markets tumbled across the board yesterday, with tech companies and Japanese stocks bearing the brunt of the damage.
- The S&P500 dropped 3%, the tech-dominated Nasdaq closed down 4%, the Dow fell more than 1,000 points, and Japan’s Nikkei 225 plunged 12% — its worst one-day decline since 1987.
Why it’s happening: It’s difficult to pinpoint just one cause of the sell-off, but a few possibilities include…
- Fears of a U.S. recession triggered by weaker-than-expected jobs numbers last week and concerns the Federal Reserve has waited too long to cut interest rates.
- Investors unwinding the so-called “yen carry trade,” a popular strategy of borrowing Japanese yen at a low interest rate to invest in risky assets, which has boomeranged as the yen has strengthened.
- Disappointing tech earnings last week that raised concerns that bets on AI may not pay off.
- Nervousness around the risk of escalation in the Middle East, with Iran expected to attack Israel imminently.
Why it matters: Shakiness in the markets risk derailing the “soft landing” — taming inflation without triggering a recession — that U.S. Federal Reserve chair Jerome Powell has been carefully trying to engineer.
Yes, but: Investors are still enjoying a better-than-average year, with both the S&P500 and Nasdaq up around 10% so far in 2024 and still not far off from all-time highs.
What’s next: The stakes just got even higher for the Fed’s next interest rate decision in September.—TS