Stock market recap: Wall Street hammered amid plunging global markets

Key Points

- 'If the economy starts to deteriorate, the Fed's job is to act and we will act appropriately,' Goolsbee said.

- Apple had its worst day since September 2022, shedding 4.82%.

The S&P 500 Index closed 106 points, or 3%, lower on Monday after a hair-raising morning drop, while the technology heavy Nasdaq composite fell 3.43% and the Dow Jones plummeted more than 1,000 points, losing 2.6%, as global markets washed out over worries of a possible recession in the world's biggest economy.

The S&P 500 and the Dow saw their biggest drops since September 2022. The market carnage shaved $907 billion off Nasdaq's market value.

“So much for the summer lull,” said Neil Shearing, group chief economist at Capital Economics, in a commentary. “Stock markets are in turmoil and bond yields have plunged as fears about a U.S. recession have taken hold.”

Driving the rout: Sharp declines in high-flying tech stocks including Nvidia, Apple, and Amazon, and a disappointing jobs report. Apple had its worst day since September 2022, shedding 4.82%. As investors ran to buy U.S. Treasurys, mortgage rates declined, opening the door for some borrowers to refinance, experts said.

These are the day's top develoments.

Biden mum on stock market rout, while Trump attacks

President Joe Biden didn’t respond directly to Monday’s market panic, and instead released a statement touting his student loan forgiveness program and the expansion of college Pell grants.

The White House kept its head down as Donald Trump and his allies worked overtime to pin the stock market carnage on Biden and Vice President Kamala Harris, the Democratic presidential nominee.

As the tech-heavy Nasdaq index shed more than $900 billion in value and the Dow Jones average lost more than 1,000 points, Biden released a statement on X apparently aimed at younger voters.

“In three years, my Administration canceled student debt for nearly 5 million borrowers through various actions, made the largest increases to the Pell Grant in a decade, and fixed Income-Driven Repayment so borrowers get the relief they are entitled to,” the statement said. “I'm not done yet.”

Trump reveled in labeling the day’s losses the “Kamala Krash.” Earlier this year, the former president took credit for record stock market highs, calling them a signal that investors favored his campaign to retake the White House.

?Dan Morrison

What does Chicago Fed President Goolsbee say about rate cuts?

The Federal Reserve has only two jobs by law: stabilize prices and maximize employment, Chicago Federal Reserve President Austan Goolsbee emphasized in an interview with USA TODAY.

“That's the dual mandate,” he said. “That's the thing that will determine what the Fed does on rates. There's nothing in the Fed's mandate that says stop market declines. Or, you know, keep traders whole on days when there's volatility, right?”

"If the economy starts to deteriorate, the Fed's job is to act ? and we will act appropriately,” he said. ?Medora Lee

What does Goolsbee say about the jobs report?

Goolsbee admitted the jobs report was “negative” but also noted it was only one month of data. The payrolls increase of 114,000 may have missed economists’ average forecast of 175,000, but he said that’s within the margin of error, which is plus or minus 100,000.

“The job of the central bank is to be steady and take the totality of the evidence when making decisions,” he said. “So if you get down in the weeds of this jobs report, it was negative, but there were some things that were cross currents that make it … a little less directly clear. Like the unemployment rate went up more than people thought, but the labor participation rate and the employment to population ratio both rose, which is kind of unusual. Normally, the recessionary signs are when the unemployment rate is rising because layoffs are going up.” Goolsbee added that “the Fed set the rate at the level it is now a year ago, and the conditions were very different a year ago than they are today” and it may be time to reconsider those rates. The Fed funds target rate is currently at a 23-year high, between 5.25%-5.5%.

“You only want to be that restrictive if you're afraid of (the economy) overheating,” he said. “And my thing is, this is not really what overheating looks like.”

?Medora Lee

How likely is a recession?

While some economists say current market conditions raise the risk of a recession within the next 12 months, others are downplaying concerns.

“The recession fears are overblown,” said Scott Wren, senior global market strategist at Wells Fargo. “It’s not time to panic here.”

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Wells Fargo economists said they expect an economic slowdown – not a recession ? noting the labor market is in the early stages of weakening and “still some distance away from even the most moderate, modern recession,” which took place in 2001. The bank also noted consumer spending has potential to grow as household purchasing power strengthens.

Goldman Sachs Group on Sunday raised the probability of a recession within the next year from 15% to 25% but see the risk as “limited,” Bloomberg reported.

Recession worries stem, in part, from the July job report’s triggering of the Sahm rule, a measure that says if unemployment based on a three-month average rises by at least a half percentage point over the past 12 months, the nation is likely in a recession.

Claudia Sahm, a former Federal Reserve economist, cautioned against taking too much of a signal from her namesake rule in a post-COVID labor market. She told Bloomberg Television “it is very unlikely that we are in a recession,” but “we’re getting uncomfortably close to that situation.”

“A really important question is, where are we headed?” Sahm said. “And those changes in the employment rate that the Sahm rule picks up on do not look encouraging. They're headed in the wrong direction, and that momentum is what can get us in trouble."

?Bailey Schulz