Overreaction or rational? Here’s why the US stock market plunged Monday.

Simone Del Rosario: Investors slammed the sell button Monday morning, with the Dow Jones sliding more than 1,000 points before the opening bell. The tech-heavy Nasdaq lost 6% while the S&P 500 was down more than 4%. 

The global sell-off started overseas in Japan, with the Nikkei index having its worst day since 1987’s Black Monday crash. On Monday, the Nikkei plunged 12.4%. 

It was Tokyo traders’ first chance to react to the U.S. jobs report Friday, where unemployment unexpectedly spiked to 4.3%, triggering a U.S recession indicator. 

Japan’s rout was contagious and U.S. markets slid further Monday than their own initial reaction Friday, when the S&P fell 1.8%. 

On Monday, the market’s “fear index” surged to levels not seen since spring of 2020. 

There’s no doubt the sell-off is sparked by recession concerns from the jobs report and worries the Federal Reserve is way behind the eightball when it comes to cutting rates. 

Seth Harris: The Federal Reserve is at real risk of missing the boat, of being too late to the game when it comes to making sure that jobs continue to grow and that workers have good opportunities in the labor market.

Simone Del Rosario: On Friday, I spoke with former deputy labor secretary Seth Harris about the disappointing jobs numbers, which he called a warning sign but not a sign of recession. 

Seth Harris: We’re beginning to hear from folks on Wall Street the R word, the discussion of recession. Now, I don’t think that this report tells us that we’re headed for recession…But as folks on Wall Street begin to start talking about it, that can become a downward spiral, as it becomes a decision making point for businesses, if you think that we’re going to shrink, if the economy is going to slow and shrink. You don’t invest in hiring people, you don’t invest in capital equipment, you don’t invest in expansion, you don’t invest in inventories. And so that is the concern.

Simone Del Rosario: And in the case he’s describing, these things can become a sort of self-fulfilling prophecy. 

Will cooler heads prevail? A lot of assessments out there conclude Monday’s market actions are an overreaction to the data. 

But it’s not just the jobs market and Fed actions feeding into it. 

For some time, investors have worried tech stocks are a bit overinflated this year, and over the weekend Warren Buffett’s Berkshire Hathaway announced it sold nearly half its Apple stock in the second quarter. 

Apple started the day down 8% and dragged down Nvidia and other tech stocks with it. 

And Bitcoin fell from around $62,000 Friday night to under $50k Monday morning. Bloomberg’s Joe Weisenthal writing, Bitcoin doesn’t look like The New Gold. It looks like 3 tech stocks in a trenchcoat. 

For SAN I’m SDR.