(NewsNation) — Stocks plunged on Monday as concerns about a weakening U.S. economy rippled across global financial markets.
The S&P 500 was down 3.1% early Monday. The Dow Jones Industrial Average pulled back more than 1,100 points and the Nasdaq composite slid 3.6%.
The latest pull-back comes after Friday’s federal jobs report came in much weaker than expected, heightening fears that the Federal Reserve may have kept interest rates too high for too long.
Unease around a slowing U.S. economy contributed to a 12.4% plunge in Japan’s Nikkei 225 on Monday, its worst day since 1987.
“The U.S. is the locomotive of the global economic train and increasing concern about a slowdown, or possible recession, has markets around the world in turmoil,” Greg McBride, chief financial analyst at Bankrate, wrote in a Monday analysis.
A rapid unloading of so-called “carry trades” was another factor that led to falling share prices overseas. That strategy is when investors borrow from a country with a weaker currency and low interest rates, like Japan, and then invest those funds where rates are higher. After the Bank of Japan raised its key interest rate last week, those trades became less appealing.
Meanwhile, in the U.S. the most recent report from the Labor Department showed signs of distress in the job market, with the unemployment rate rising to 4.3%, the highest since October 2021.
The unemployment uptick set off a reliable recession indicator known as the Sahm Rule, which has been triggered early in every recession since 1970. However, Claudia Sahm, the former Fed economist the rule is named after, has urged caution, suggesting this time could be different due to unique post-pandemic labor conditions.
Even so, the cooling labor market is just one worrying economic indicator among several.
“Couple economic concerns with the cacophony of earnings disappointments and weak corporate outlooks, global unrest, and currency gyrations, and you have the recipe for sudden volatility,” McBride said in his note.
Last quarter, McDonald’s global same-store sales fell for the first time in nearly four years as consumers pulled back on spending. Recent results from tech giants like Microsoft, Intel and Amazon have also underwhelmed investors.
Last week, the Fed decided to keep its key interest rate unchanged at a 23-year high of 5.3% — a decision that has since been criticized amid growing concerns that economic policymakers are now being too aggressive in their fight against inflation.
“Fed Chair Powell made a serious mistake not cutting interest rates,” Sen. Elizabeth Warren (D-Mass.) said in a Friday post on X. “He’s been warned over and over again that waiting too long risks driving the economy into a ditch.”
Fed Chair Powell said Wednesday that a rate cut “could be on the table” if inflation continues to fall by the time the Fed next meets Sept. 17-18.
McBride said it’s important to stay calm during periods of volatility.
“Investing for the long-term means embracing these periods of turbulence, either to buy more or to just shrug it off and maintain the long-term perspective,” he said.
The Associated Press contributed to this report.
