Recent market rout and the impact on equities

AS SINGAPORE marks its 59th birthday this month with nationwide National Day celebration activities, will the excitement bubble into the equity market? Is the market’s frothiness finally turning the tide on an overheated artificial intelligence (AI) rally? Have markets pushed ahead of fundamentals?

Global markets have been volatile since the July US jobs report. This showed the US economy added 114,000 jobs in July, and an unemployment rate of 4.3 per cent – the highest since the pandemic. This sparked the “Sahm rule” which pointed to an impending recession. What followed was a massive bout of risk aversion that hit global markets with sharp declines for several major asset classes.

The Nikkei 225 index fell 12 per cent on Aug 5, the largest single-day decline since October 2008 (when it fell 11.4 per cent), reflecting market concerns about the economic outlook, red-hot tech valuations, and rising geopolitical tensions in the Middle East. This was further aggravated by poor earnings and outlook concerns for the big-tech companies, further adding fuel to the hard-landing scenario for the US economy. The CBOE Volatility Index (VIX) – commonly referred to as the market’s fear index – also spiked to the highest level since the pandemic in 2020.