Markets plummet with tech shares on Nasdaq leading the selloff

Dow tumbled 907 but 400 above the lows, decliners over advancers by a staggering 95% & NAZ plunged 436.  The MLP index dropped 9 to the 271s & the REIT index was off 3 to the 408s.  Junk bond funds were hit with limited selling & Treasuries had modest buying which reduced yields to the lowest in more than a year.  Oil stayed flattish in the 73s after buying in the last  hour & gold was also hit with selling, dropped 21 to 2448.

Dow Jones Industrials 

The stock market's fear gauge spiked today to the highest level in more than 4 years amid a global market meltdown.  The Cboe Volatility Index (VIX) helps measure the level of fear among investors.  It jumped as much as 172% to 62.3 before trading opened today.  That marks the highest level for the index since Mar 2020, at the onset of the COVID-19 pandemic, when the gauge rose as high as 85.5.  The VIX index is based on the price of S&P 500 stock options & is used to measure expected volatility.  Since the start of the pandemic, the VIX index has been relatively stable, never closing above 40.  But it started to surge last week after the weaker-than-expected Jul jobs report reignited fears of a recession.  The Labor Dept reported the economy added just 114K workers last month, while the unemployment rate jumped to 4.3%, the highest level since Oct 2021.  The report added to mounting evidence that the economy is weakening in the face of high interest rates.  That's because the rise in unemployment triggered the Sahm Rule, an indicator that is used to provide an early recession signal.  The rule stipulates that a recession is likely when the 3-month moving average of the jobless rate is at least a ½-percentage point higher than the 12-month low.  Over the past 3 months, the unemployment rate has averaged 4.13%, which is 0.63 percentage points higher than the 3.5% rate recorded in Jul 2023. The Sahm Rule has successfully predicted every recession since 1970.  Stocks crashed on Fri following the report, with the S&P 500 notching its worst day since Oct 2022. The indices resumed their downward spiral today as the sell-off deepened.  "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," said Greg McBride, chief financial analyst at Bankrate.

Wall Street's fear gauge spikes to highest level since 2020 as global turmoil deepens

Chicago Federal Reserve Pres Austan Goolsbee vowed that the central bank would react to signs of weakness in the economy & indicated that interest rates could be too restrictive now.  Asked whether weakening in the labor market & manufacturing sector could prompt a response from the Fed, Goolsbee did not commit to a specific course of action but said it does not make sense to keep a “restrictive” policy stance if the economy is weakening.  He also declined to comment on whether the Fed would institute an emergency intermeeting cut.  “The Fed’s job is very straightforward: maximize employment, stabilize prices and maintain financial stability. That’s what we’re going to do,” the central bank official said.  “We’re forward-looking about it. So if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.”  The interview occurred with markets in turmoil.  Chicago Fed Pres Goolsbee says if economy deteriorates, Fed will ‘fix it’  The moves continued a downward trajectory that began Thurs, a day after the Fed opted not to lower interest rates, raising concerns that policymakers were behind the curve as inflation falls & the economy weakens.  Those fears were heightened Fri when the Labor Dept said nonfarm payrolls increased by just 114K & the unemployment rate climbed to 4.3%, triggering a signal known as the Sahm Rule that the economy could be in recession.  However, Goolsbee said he does not believe that to be the case.  “Jobs numbers came in weaker than expected, but [are] not looking yet like recession,” he said.  “I do think you want to be forward-looking of where the economy is headed for making the decisions.”  He also said, however, that Fed policy is restrictive now, a position it should only be in if the economy looks like it is overheating.  The central bank has kept its benchmark rate at 5.25-5.50% since Jul 2023, the highest level in 23 years.  “Should we reduce restrictiveness? I’m not going to bind our hands of what should happen going forward because we’re still going to get more information. But if we are not overheating, we should not be tightening or restrictive in real terms,” he added.  Policymakers have been focused on the “real” fed funds rate, which is the Fed's benchmark minus the inflation rate.  As inflation declines, the real rate increases, unless the Fed chooses to cut.  The real rate now is around 2.73%.  Fed officials judge the long-term real rate to be closer to 0.5%.

Chicago Fed President Goolsbee says if economy deteriorates, Fed will ‘fix it’

Coca-Cola (KO), a Dow stock & a Dividend Aristocrat, announced it will pay $6B in back taxes & interest after a ruling in a case dating back nearly 20 years with the IRS.  The dispute covers fiscal years 2007-09, which is when the IRS claimed KO should have reported a higher income as a result of intl transfer pricing.  "The company looks forward to the opportunity to begin the appellate process and, as part of that process, will pay the agreed-upon liability and interest," KO said.  The soda company plans to appeal the ruling, which was delivered in 2 sentences by Tax Court Judge Albert Lauber.  According to The Wall Street Journal, Atlanta-based KO said in a recent filing it would update its tax reserves if the company does not win its appeal.  KO has 90 days to request a review of the decision by a federal appellate court.  The Wall Street Journal reported the company believes "it is more likely than not" that the appeals court will not overrule its tax positions, according to a regulatory report.  The stock was off 94¢ with all the selling today.

Coca-Cola hit with massive bill for back taxes and interest after court ruling

Yields inched up slightly from their session lows after fresh economic data showed the US services sector grew at a faster-than-expected pace in Jul. The ISM services index recorded a 51.4% reading for the month, representing the share of purchase managers reporting expansion.  That is up from 48.8% in Jun & better than the estimate for 50.9%.  But many investors have since questioned whether the central bank should have moved to cut rates already to ward off an economic downturn.  Recession fears spilled into global markets. In Japan, the Nikkei 225 had its worst day since 1987, plunging 12%.  Stocks in Europe were also down sharply today.  These selloffs happen a few times in a century & when they occur it is common for stockholders to panic.  Helped by the ISM report, bargain hunting is already trimming losses.