Apple and Nvidia sink and drag markets on fears of US recession

U.S. stock futures fell as investor concerns grew over a slowing U.S. economy and an overheated rally in the technology sector. Nasdaq 100 futures fell as much as 6.5% before quickly paring losses to about 4%. S&P 500 futures fell 2.5%, while those tracking the Dow Jones Industrial Average fell 1.6%.

Megacap technology stocks bore the brunt of the selloff, with chipmaker Nvidia falling more than 7% and Apple dropping 6%. Meanwhile, Japanese stocks entered a bear market as the yen extended its recent rally against the dollar.

The latest cause for jitters was Friday’s release of data showing higher unemployment in July, which triggered a closely watched recession indicator, fueling fears that the Federal Reserve had not acted quickly enough to cut interest rates. Goldman Sachs raised the probability of a recession next year to 25% from 15%, although it added that there were reasons not to fear a downturn.

“We continue to view recession risk as limited,” economists led by Jan Hatzius wrote in a report to clients on Sunday. The economy continues to look “good overall,” there are no major financial imbalances and the Fed has plenty of room to cut interest rates and could do so quickly if needed, they said.

The Nasdaq 100 entered a correction on Friday, with technology still feeling the brunt of the selloff as investors fretted about lofty valuations and the impact of geopolitical tensions associated with the presidential election. The gauge hit a record high less than a month ago before the AI ​​rally began to falter.

Buffett, Apple

News that Warren Buffett’s Berkshire Hathaway cut its stake in Apple by nearly 50 percent in the second quarter further fueled risk-off sentiment in the tech sector. The sale of shares in the iPhone maker, which rose 23 percent in the quarter, helped push Buffett’s cash pile to a record $276.9 billion.

“It should be hard for anyone to argue that this isn’t a market negative,” Mike O’Rourke, chief market strategist at Jonestrading, wrote in a report.

The turmoil in Japan – where the central bank has started raising interest rates while the Fed looks set to cut – is also having ripple effects across global markets across asset classes. This is due to moves to unwind carry trades, in which investors borrowed at lower rates in Japan to fund purchases of higher-yielding assets elsewhere.

“With yen carry trades now being rapidly unwound, not only has the Japanese currency notably broken its depreciation trend against all major currencies, but the risk assets with which these trades were financed are also being sold off,” Asymmetric Advisors strategist Amir Anvarzadeh wrote in a note. The Fed’s big rate cuts “will only reinforce the yen’s recent strength.”

Dividend stocks such as utilities and real estate stocks are seen as a potential refuge from simultaneous declines in technology stocks and bond yields. Some of the early beneficiaries of the AI ​​leader rotation have already begun to stumble, with banks and consumer stocks falling on Friday along with technology stocks on recession concerns.

“We have transitioned from a market that could do no wrong to one that is threatening across the board,” J.C. O’Hara, chief technical strategist at Roth Capital Partners, wrote in a note. “We are in an environment where the narrative, or at least confidence in the narrative, can change rapidly, which in turn will create more rotation and more risk-off in the near term.”

With information from News Agencies