A trader works on the trading floor of the New York Stock Exchange (NYSE) on August 1, 2024 in New York City. New economic data showed initial jobless claims hit the highest level in a year and a manufacturing index measuring U.S. factory activity also fell short of expectations, raising fresh concerns about a recession and a broad stock market selloff.
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Strategists on Friday urged investors to be cautious about the global stock market selloff, warning that it may be too early to buy dips given that share prices “look vulnerable to further declines.”
U.S. stocks opened sharply lower in August as new data raised concerns about a worsening economic outlook.
Initial jobless claims rose the most since August 2023.
The weak data led to concerns among investors that the Federal Reserve may be lagging behind in cutting interest rates to stave off a recession.
European stocks fell about 1.6% on Friday morning, following losses on Wall Street. In Asia, Japan’s benchmark index fell more than 5% on Friday, with the Nikkei having its worst day in more than four years, Reuters reported.
Cedric Chehab, global head of country risk at research firm BMI, said the deterioration in market sentiment was the result of a combination of factors. However, he insisted that “such revisions are absolutely normal.”
“The sell-off started about a week and a half ago but then started to gradually move lower in the middle of this week. It was triggered by a number of factors,” Chehab told CNBC’s “Street Signs Asia” on Friday.
“First, the hawkish Bank of Japan caused the carry trade to collapse in the short term. U.S. manufacturing data and some employment sub-indicators also spooked the market,” he continued.
“And then overnight we saw a lot of volatility in some of the key earnings. All of that helped push what was already a pretty expensive stock market even lower.”
Chehab said one factor some investors seem to forget is that stock market volatility typically rises seasonally between July and October.
“So, given the historical pattern of calendar impact on stocks, this is not entirely unexpected, especially following sharp gains in U.S. stocks and global equities.”
When asked if the sell-off meant investors should consider hitting the panic button, Chehab responded: “No, I don’t think so. It’s because from a technical perspective, at the moving averages and key technical levels. “
He added, “Such adjustments are absolutely normal, especially when you have excessive upward momentum.”
Is it too early to buy the dip?
U.S. central bank policymakers on Wednesday Rates have remained steady even as Fed Chairman Jerome Powell gave investors some hope by signaling a rate cut in September.
On July 31, 2024, Federal Reserve Chairman Jerome Powell answered questions from reporters at a press conference following the Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Building in Washington, DC.
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Shane Oliver, head of investment strategy and chief economist at investment management firm AMP, said a correction appeared to be underway.
“Share prices surged in July on good news on inflation, optimism about future interest rate declines and increased optimism about IT and AI-related earnings,” Oliver said in a research note released on Friday.
He added that while AMP believes lower interest rates in the future could boost stocks over the next six to 12 months, assuming a recession is avoided, global stocks “look vulnerable to further losses, suggesting buying the dip now” It’s too early to enter.” “
Market attention now turns to the closely watched non-farm payrolls report later on Friday, as investors look for clues on the pace and scale of rate cuts by the Federal Reserve in the coming months.
—CNBC’s Pia Singh and Samantha Subin contributed to this report.
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