Wall Street is reeling on Monday, with the “fear index” hitting multiyear highs and stocks plunging quickly after the markets opened.
The turmoil raised speculation that the Federal Reserve might have to consider an emergency response and even led to increased chatter about an election-year recession.
Stocks across the board were largely in the red. The tech-heavy Nasdaq plunged more than 1,000 points after open, the worst daily point loss in the history of the index, including intraday swings. The Dow Jones Industrial Average cratered about 1,200 points while the sell-off dragged the S&P 500 down by 4% right after open.
The fear of a slowing labor market and economy was also seen through the “fear index,” a nickname for the Chicago Board Options Exchange Volatility Index and better known as VIX. The VIX was up some 120% on Monday and reached the highest level since March 2020 at the outset of the COVID-19 pandemic.
The pessimistic Monday comes after a weaker-than-expected employment report on Friday that saw the unemployment rate tick up to 4.3%.
“Traders wasted no time in running for the exits as a weak manufacturing survey on Thursday caused some jitters and an unexpected 0.2% jump in the unemployment rate on Friday resulted in panic,” said Chris Zaccarelli, the chief investment officer for Independent Advisor Alliance. “Oftentimes, the weekend is a time for cooler heads to prevail and for calm to reassert itself, but based on futures trading this morning, the opposite is occurring.”
It wasn’t just traditional assets that were bleeding on Monday morning. Bitcoin and other cryptocurrencies took a major hit as well. At one point, bitcoin was down 16% to just over $51,000, and that was from a recent high of over $58,000. Bitcoin is down about 20% over the past five days. Ether was off by 13%.
Also on Monday, the Japanese stock market crashed and closed down more than 12% and notched its biggest daily point drop in history.
Additionally, oil prices fell.
U.S. West Texas Intermediate crude prices were up more than 1.2% on Monday while Brent crude oil, which is an international benchmark for oil prices, was down 1.3%. That is despite the upward price pressure from geopolitical uncertainty in the Middle East between Iran and Israel.
This is bad news for Vice President Kamala Harris’s campaign for president. Any bad economic news will hurt Harris, given the economy is the No. 1 topic on the minds of voters.
Voters have soured on the economy because of years of too-high inflation, but a couple of positive spots in the economy have been the strong labor market and the strong stock market. The rising unemployment rate shows the jobs market is softening, and if a stock selloff continues, it would jeopardize her chances in November.
After the lackluster employment report on Friday, investors priced in near certainty that the Fed would cut interest rates at its next meeting in September. Now investors think there is a chance that the Fed could hold an emergency meeting and cut rates early.
Traders now peg the odds of an emergency rate cut within a week at about 60%.
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Fears of a recession are also rising. The Friday jobs report triggered a major recession indicator, known as the Sahm Rule, which is when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. The Sahm Rule has signaled the start of all post-war recessions.
A recession would be a worst-case scenario for Harris, and if it appears one is likely, former President Donald Trump and Republicans would undoubtedly blame the Biden administration and Harris for the downturn.