On Monday, Japan’s Nikkei 225 stock index fell 12.4% for its worst single day since the Black Monday crash of 1987 and European stocks had a similarly rough session. Former Federal Reserve economist Claudia Sahm told Bloomberg the U.S. was “uncomfortably close” to a recession. The “Fear Index” on Wall Street hit a four-year high. And as U.S. stock markets fell even more after last week’s sobering losses, especially for tech stocks, the so-called Magnificent 7 (the collective name for Amazon, Apple, Google, Meta, Microsoft, Nvidia and Tesla) did not exactly live up to their collective reputation. Their standing suffered another major blow late Monday with news that a federal judge ruled Google had violated antitrust laws via its search engine dominance.
Granted, the Mag 7 have been on a tear this year, Wall Street still had some bargain-hunting buyers Monday afternoon, and the issues in Japan relate to that nation’s sectarian decision finally to raise interest rates, stinging financiers who long had been investing with borrowed Japanese Yen, a strategy predicated on the Yen continuing to fall in value. Since the opposite now has happened — one dollar bought more than 160 Yen just three weeks ago whereas Monday afternoon it bought only 145 — that means rattled investors have had to cover their losses.
Still, that drastic swing, impacting exporters, importers and tourists alike, is a reminder that things happen very quickly these days. More broadly, there is genuine concern about the U.S. economy after the Friday release of a jobs report showing only 114,000 jobs added in July, according to the Bureau of Labor Statistics. That badly trailed most economists’ estimates of 175,000 or more. And the unemployment rate ticked up to 4.3% from 4.1%, whereas most analysts had expected it to remain steady. It’s probably fair to say that the unemployment data caused a general freakout, to use the technical term.
Meanwhile, the U.S. presidential election campaign is mired in trivialities: Whether or not vice presidential candidate JD Vance wears eyeliner, the romantic history of second gentleman Doug Emhoff and, weirdest of all, the circumstances that led to the far-from-credible presidential candidate Robert F. Kennedy Jr. admitting to dumping the carcass of a bear cub in Central Park in 2014 and making it look like a bike accident.
The Kennedy confession jumps the shark, even for the current TikTok-driven era. Apparently in an attempt to get ahead of the story, published today, in The New Yorker, Kennedy posted a video on X Sunday, also featuring Roseanne Barr, confessing that he thought taking the bear’s body out of his trunk (he’d been thinking of eating it for dinner) and leaving it in Manhattan would make for an amusing discovery for someone. Hardly. This from a man who aspires to be president of the United States, an office trusted, among other things, with maintaining a stable economy, growing jobs and keeping inflation in check. Kennedy, this story confirms, is no safe haven for anyone unimpressed with either candidate from the two major parties. Mark our words on that.
Monday’s news was a reminder that while presidents often have limited control over economic ebbs and flows, it’s vital to have a steady hand on the tiller and for voters to see past the noise and concentrate on what matters. Clearly, it’s time for the Federal Reserve to cut interest rates, given the increased danger of the vaunted soft landing actually tipping the nation into recession. Whether there yet is sufficient reason for the Fed to approve an emergency rate cut is open to debate; our view is that they’d be wise to offer some firmer guidance as to their intent in their scheduled meetings but stop short of an emergency cut. Of course, circumstances could easily change and we have to trust the Fed will act impartially, even as Donald Trump predictably took the chance to blame the market losses on the nomination of Kamala Harris, which has very little or nothing to do with the current situation.
That said, most consumer products companies, from luxury sellers to detergent makers, are reporting disturbingly soft sales, attributing the results to consumers pulling back on spending due to the impact of inflation over the past several years — warning signs conveniently poo-poohed by those looking to promote a rosy economic view for political reasons. So it’s hardly surprising that market and consumer sentiment is worsening. Interest rates are at a 23-year high, and it takes a while for the impact of such changes to filter down to Main Street. Consumer spending and employer hiring weren’t going to keep defying these trends forever. The dominant narrative now is away from the “soft landing” that appeared in sight and closer to a more challenging reality.
The hefty wage hikes and egregious new business mandates from all levels of government that we’ve discussed on this page for months were predicated on a booming economy; we’re now beginning to see the balance tip back and workers finding themselves with less bargaining power for the first time since the pandemic. And, of course, government entities making predictions about revenue are now well advised to err on the side of caution.
Not for the first time, Warren Buffett appeared soothsayer-like as news came Saturday from Berkshire Hathaway’s second quarter earnings report that it had dumped about half of its stake in Apple: a holding worth $76 billion. That came even as Apple had announced a record quarterly operating profit.
Buffett, who thus amped up his cash holdings, has adopted a defensive position. Not a bad idea right now.
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