Global stock markets tumbled, with losses cascading across tech shares, Nasdaq 100 Index futures falling more than 4% and Japanese equities crashing by the most in over a decade.

As concerns about a US economic slowdown intensified, traders ramped up bets that the Federal Reserve will step in with an emergency interest rate cut. The dollar weakened, and the 10-year Treasury yield fell to the lowest in a year. Wall Street’s fear gauge, the CBOE Volatility Index, soared to the highest since 2020.

Nvidia Corp., Apple Inc. and Tesla Inc. fell more than 7% in premarket trading. Berkshire Hathaway Inc. reported on Saturday that it had slashed its stake in Apple by almost 50% as part of a massive second-quarter selling spree. Chipmakers including Intel Inc. and Advanced Micro Devices Inc. also plunged.

Markets are extending last week’s retreat, when a weak US jobs report ignited fears that the Fed isn’t moving fast enough to prevent a sharp economic downturn. The wave of selling hit a fever pitch in Japan as traders rushed to unwind popular carry trades, powering a 3% surge in the yen and causing the Topix stock index to shed 12% and close the day with the biggest three-day drop in data stretching back to 1959.

“The key point is the current shift in narrative, from no landing to soft landing,” said Florian Ielpo, the head of macro research at Lombard Odier Asset Management. “That risk was poorly priced and investors shifting gears fast explains the extent of the move.”

At one point, Nasdaq futures tumbled 6.5%, coming close to triggering a circuit breaker, before paring the drop. The index has already fallen more than 10% since its July 10 record, passing the threshold that meets the definition of correction.

Investors sought havens in government bonds and the Swiss franc. Economists at Goldman Sachs Group Inc. put the probability of a US recession in the next year to 25%, increasing their forecast from 15%. They added that the risk is still limited and the economy continues to look “fine overall.”

Even so, swaps pricing has moved dramatically in recent weeks to reflect the perception that the Fed will need to act quickly to preserve growth.

“Clearly those jobs numbers have absolutely freaked everybody out,” said Neil Birrell, chief investment officer at Premier Miton Investors. “It might well be that even the Fed thinks that we’ve got to do something to provide markets stability, and that could be an out-of-cycle rate cut. To do it a week after its policy meeting would be extraordinary, based on one data point.”

Still, bets on an early move by the Fed are misplaced, as the economy remains relatively robust despite the most recent data, said Christopher Dembik, senior investment adviser at Pictet Asset Management.

“We are facing a panic-style market overreaction, but it is largely irrational,” Dembik said. “The economy is deteriorating but nothing distressing if one takes a step back.”

The selloff swept across risk assets of all stripes. In Taiwan, the benchmark stock gauge sank 8.4% lower, marking its worst selloff since 1967, in a decline that was led by AI-chipmaker Taiwan Semiconductor Manufacturing Co. Brent futures slipped toward $75 a barrel - erasing this year’s gains - and hit the lowest level since January. Bitcoin erased more than 10%.

What other investors and strategists are saying:

We recommend keeping a defensive stand, using the correction to buy high quality assets that have derated. It is not the time to take large direction risks.

We are not changing our strategy, which we had lowered to a moderate Underweight in July, but we believe it is premature to repurchase now.

People are scared, people are selling everything. So when it is this quick normally, it stops quickly. It will create a lot of opportunities. Eventually it’s just a matter of trying to not lose too much and eventually create some nice performance.

Even if the US does go into recession, it’s likely to be a relatively soft and shallow one. Interest rates are going to start coming down, which will at some point provide some some support for the stock market. If we were to see an acceleration of the selloff, then I’d be more minded to be a buyer at that point than a seller.

The bigger concern for tech companies, and semiconductors in particular, is that this is a cyclical industry. Demand will impact sales and thus any slowdown will filter through to some of these tech giants. The macroeconomic data out last week is pointing to a more extreme slowdown than had been anticipated, putting into doubt the coveted soft landing the Federal Reserve is after. As such, the next few weeks is likely to be a volatile one for tech stocks.

My portfolio is built to withstand these types of event so I don’t have a engage myself in a big-time rotation. I’ve got fairly high levels of cash and if some stocks I have already identified go down enough, I might just buy the dip. But in no way am I trying to do some market timing, this is a very dangerous strategy which can be very costly.

I might be a lonely voice today calling to buy the dip, but I think this selloff has been about positioning, valuation adjustment as the major drivers of the previous rally are still there.

  - Bloomberg