Chaos has erupted on Wall Street and around the world amid fears the US is in danger of falling into a recession. Stocks have plunged globally, with Asian shares and bitcoin falling sharply, following Federal Reserve Board of Governors member Christopher Waller’s stark warning of redundancies on an “eye-popping” scale across major US firms.
On Tuesday, Bitcoin dropped under $90,000 for the first time in seven months in what is seen as yet another indication that appetite among investors for risk-taking is receding across the globe, as per Reuters.
It comes as US stock futures fell today (Tuesday) amid nervousness in the markets, as analysts await the country’s September employment data set to be published on Thursday. These key figures have been considerably delayed due to the recent US Government shutdown – the longest in history. Investors are also watching closely amid fears from some experts that the boom in Artificial Intelligence (AI) may be a bubble on the verge of bursting, bringing shares to the brink of a sharp correction, as per The Telegraph.
Nvidia, a leader in the AI space is set to publish a key earnings report on Wednesday, which is seen as a bellwether for the technology’s financial health.
Meanwhile, Japanese stocks saw a sharp decline on Tuesday, with the Nikkei falling by 3% amid concerns about tech stocks. Chip maker Tokyo Electron dropped 5.4%, while leading semiconductor test provider Advantest shed 4.6%.
Benchmarks in South Korea and Taiwan also saw falls, with the Kospi dropping 3.1% to 3,960.82 and the Taiex plunging 2.3%, respectively.
The FTSE-100, an index of the biggest 100 UK firms listed on the London Stock Exchange, was down 94.63 at 9580.80 at 8:15am.
Experts at Kalshi, an exchange and prediction market, have predicted a 30% chance of US recession next year. Traders on site are also predicting recessions in the UK, Japan, China and India.
Prem Raja, head of trading floor at Currencies 4 You said: “Markets are currently trading on recession fears rather than inflation risks. Waller’s warning about large-scale redundancies has rattled sentiment because it hints that corporate America is preparing for a deeper downturn.
“That has triggered a broad risk-off move across equities and even Bitcoin, which often trades like a high beta asset. There is also growing concern that certain aspects of the AI trade are overvalued.”
He added: “With NVDA reporting earnings on Wednesday, we expect significant volatility. Investors are reassessing earnings expectations, credit conditions and the Fed’s path, and the worry is that weakening labour demand feeds into softer spending and slower growth from here.”
Meanwhile, David Belle, founder and trader at Fink Money says he doesn’t believe there’s a recession risk, “even though job vacancy data is in a downtrend, but what I do think has significance now is the uncertainty over the US interest rate decision in December and also the big black hole of no reporting on jobs due to the government shutdown”.
“In combination with this, the largest stock in the SP500 reports this week, Nvidia, and so many are being more cautious in case the market drops if earnings are bad,” he added.
“However, if Nvidia earnings are good, the market is likely to spring right back up. It’s a natural part of the cycle, but with US growth at 3.8%, recession is very much far off.”
“If we consider that many of these jobs are being shed due to AI actually bolstering firms’ productivity, we get into a situation where the stock market firmly does not reflect the economy, because business margins are either being at least maintained or improved with the introduction of AI processes.”
Scott Gallacher, director at Leicester-based Rowley Turton said: “After such a strong run, a market pull-back was always likely — this wobble is no reason for long-term investors to panic.
He said Mr Waller’s job cuts warning “has understandably rattled markets”. “These redundancies reflect weaker demand, cost pressures, and in some sectors the shift toward automation and AI,” he added.
“Could this spark a global recession? It’s a risk, but far from a certainty. For most long-term investors, the best course remains the same: sit tight — it’s time in the market, not timing the market.
“What’s especially interesting is Bitcoin’s sharp fall. In theory, if it were truly a ‘safe haven’, it should rise when fear enters the market. Instead, it’s fallen harder than equities, underlining that Bitcoin still behaves as a high-risk, speculative asset — not the defensive store of value some claim.”
You can follow our live blog here.
