Hello readers,
It came from Tokyo and ravaged everything in its path, causing trillions of dollars in losses. No, it wasn't a 400-foot-tall, fire-breathing dinosaur mutated by radioactive waste. A combination of tepid U.S. economic data and an interest rate increase from the Bank of Japan sent richly-valued tech stocks tumbling last week. Then all hell broke loose on Monday with the main Japanese stock index tumbling 12.4% overnight – the most since America's 1987 stock market crash.
Regional markets sold off in sympathy with Taiwan, the center of the global semiconductor industry, suffering the worst drop in its stock benchmark's 57-year history. That not only spooked already-nervous U.S. investors but also raised inevitable comparisons with that historic panic–still the sharpest one-day drop ever for American stocks.
Of course, this Monday was nothing like Black Monday's 22.6% meltdown in terms of magnitude. Moreover, the severity of this selloff may actually be a silver-lining, according to Heard on the Street's Jon Sindreu. He notes that 'sudden market selloffs are less dangerous than those that unfold progressively over time. This is because investors who rationally price in bad economic data often do so slowly, as it trickles in. Flash crashes, conversely, are often a sign that some tidbit of bad news made speculative bets go awry, triggering a cascade of trades, many of them automated.'
Japan isn't just a very big economy but also a logical place for a globe-spanning selloff to begin. That is because its years of low and even negative interest rates have made it a cheap place to borrow money to invest in more promising assets–everything from Mexican bonds to the Magnificent 7 stocks that were until recently propelled by AI fever.
Here’s what else Heard on the Street was watching:
- Stocks and bond yields closed above their lows of the session. The Dow Jones Industrial Average, which fell by as many as 1,238 points or 3.1%, ended the session off by 1,034 points or 2.6%. And the tech-heavy Nasdaq Composite, which started the day down by more than 6%, ended it 3.4% lower.
- Bitcoin, supposedly a safe haven, failed once again to fulfill that role with a drop of more than 10%.
- Somewhat out of step with other assets, the world's leading industrial commodity, crude oil, barely fell in value on futures markets. Thank major exporter Iran. It vowed to retaliate against Israel, which it blames for the assassination of Hamas's politburo leader while he was in Tehran for the inauguration of Iran's new president.
Today's Markets News:
- Is This 1987 All Over Again? What’s Driving the Market Meltdown?
- The One-Hour Nurse Visits That Let Insurers Collect $15 Billion From Medicare
- Unraveling Trades Fuel Global Market Rout
What's Coming Up:
Earnings season rolls on with Caterpillar, AirBnb, Uber Technologies, and Amgen among companies unveiling quarterly numbers Tuesday.
Thank you for reading,
Daniel Silva
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