Due to Fear of Recession, Wall Street Sharply Declines and Continues Trend

On Wall Street, stock indices sharply declined on Monday, continuing the negative trend from last week, as investors are uncertain regarding Washington’s trade policy and are fearful of a recession.

The Dow Jones index fell by 2.08 percent, to 41,911 points, while the S&P 500 plummeted by 2.70 percent, to 5,614 points, and the Nasdaq index dropped by 4.0 percent, to 17,468 points.

Last week, these indices sharply fell due to investor uncertainty regarding U.S. President Donald Trump’s trade policy, and the negative reaction to his shifts continued on Monday. When asked by reporters, Trump on Sunday declined to comment on the market’s negative reaction to his introduction, postponement of tariffs, and whether this uncertainty would lead to a recession.

– Concern is growing, so investors are pulling back from the market, but macroeconomic data is not overly concerning yet – says Tom Hainlin, strategist at U.S. Bank Wealth Management.

However, a group of economists from Reuters warns of an increasing risk of recession in the U.S., Canada, and Mexico, given the imposition of tariffs. As a result, the S&P 500 index recorded its largest daily drop since mid-December last year, and the Nasdaq index its largest since September 2022. The Nasdaq has plunged into correction territory, more than 10 percent below its record level reached in mid-December, while the S&P is 8.6 percent away from its record level.

Pressure on the Technology Sector

Yesterday, the S&P 500 index of the technology sector fell the most, on average by 4.4 percent, with Tesla’s stock being among the biggest losers, as its price plummeted by more than 15 percent. Since Tesla CEO Elon Musk joined Trump’s team in mid-December, Tesla’s stock price has fallen by more than 50 percent, resulting in a market value loss of $800 billion.

In addition to being shaken by the recent success of the Chinese company DeepSeek in the field of artificial intelligence, the technology sector is under pressure due to the strengthening of the Japanese yen against the dollar and rising yields on Japanese government bonds as further interest rate hikes in Japan are expected. As a result, investors are pulling back from so-called carry trading.

Carry trading involves borrowing in yen at lower interest rates and investing in other currencies or assets with higher yields. Analysts say that the slowdown of such trading is one of the reasons for the decline in stock prices of American technology giants.

– If you want to know what is happening in the U.S. market, stop looking at tariffs and follow what is happening with yields on Japanese government bonds. Carry trading is easing, and all that money was invested in the stocks of the so-called ‘Magnificent Seven’. That is why the technology sector has fallen – explains Thomas Hayes, president at Great Hill Capital.

Due to all this, the VIX ‘fear’ index of the Chicago Board Options Exchange reached its highest level since August last year, indicating that investors are increasingly hedging their portfolios against potential further declines in stock prices.

European Markets Also Significantly Decline

On European markets, trading was cautious on Tuesday morning, and stock indices stagnated after yesterday’s significant drop.

The STOXX 600 index of leading European stocks was almost unchanged at 9:30 AM compared to yesterday.

Meanwhile, the London FTSE index weakened by 0.20 percent, to 8,585 points, while the Frankfurt DAX strengthened by 0.24 percent, to 22,675 points, and the Paris CAC by 0.31 percent, to 8,070 points.

On most Asian markets, stock prices fell. The MSCI index of Asian stocks was down 0.3 percent at 9:30 AM. The Japanese Nikkei index slid by 0.6 percent, while stock prices in Australia and South Korea fell between 0.9 and 1.3 percent. In Hong Kong and Shanghai, however, they rose between 0.2 and 0.4 percent.

At the very beginning of trading, Chinese markets were also in the red, but later the indices managed to break into positive territory.

Other Asian markets are following yesterday’s direction of Wall Street, where the Dow Jones index fell by 2.1 percent, the S&P 500 by 2.7, and the Nasdaq index by 4.0 percent.