Dow crashes 1,000 points and the Nasdaq loses 3% as recession fears fuel market panic

Traders on Monday reacted to the weak July jobs report and a surprise rate hike from the Bank of Japan, unwinding the so-called carry trade in markets.

• US stocks plunged Monday amid recession fears and the yen carry trade unwind.
• The Dow Jones fell over 1,000 points while the Nasdaq 100 dropped 3.4%.
• Bank of Japan's surprise rate hike last week led to a crescendo of margin calls and forced selling.

US stocks plunged on Monday as investors worried about a potential recession and the knock-on effects from the unwind of the yen carry trade.

The Dow Jones Industrial Average plunged more than 1,000 points, while the Nasdaq 100 dropped about 3.4%, moving further into correction territory. Even safe-haven asset gold wasn't spared in the decline, dropping nearly 1%.

A confluence of risk factors sparked the sharp decline on Monday, including continuing concern over a weak July nonfarm payrolls report last week, news that Warren Buffett's Berkshire Hathaway cut its Apple stake in half in the second quarter, and poor earnings reports from Amazon and Intel.

All of those factors have drummed up fears that a recession could be imminent, especially given that the Federal Reserve could be "behind the curve" in its failure to cut interest rates last month.

Here's where US indexes stood at the 4:00 p.m. closing bell on Monday:

• S&P 500: , 5,186.33, down 3%
• Dow Jones Industrial Average: 38,703.27, down 2.6% (-1,033.99 points)
• Nasdaq composite: 16,200.08, down 3.43%

Some believe the Fed should implement an emergency interest rate cut, including Wharton professor Jeremy Siegel.

"I'm calling for a 75 basis point emergency cut in the Fed funds rate, with another 75 basis point cut indicated for next month at the September meeting, and that's minimum," Siegel said on Monday.

But perhaps the biggest driver of Monday's stock market decline was the unwind of the yen carry trade.

"After such a strong rally since last fall, valuations, sentiment, and investor positioning had become stretched. What markets are experiencing today is an unwinding of that bullish positioning, which is particularly evident in the yen and the so-called carry trade," market strategists at LPL said.

A surprise interest rate hike from the Bank of Japan last week, combined with the prospect for interest rate cuts from the Fed, sparked a series of margin calls as the yen strengthened.

And that led to a cascade of forced selling in the stock market, with Japan's stock market experiencing its worst decline since 1987, dropping 12%.

"A lot of money was raised in Japan at 0% interest rates and used to speculate in other parts of the world, so I think that's all coming unglued and I think it's a lot of margin calls and I think it's going to happen pretty quick and the unwind should be over by the end of the week," Ed Yardeni told Yahoo Finance on Monday.

Here's what else happened today:

• Nvidia chips used to power advanced AI are finding their way to the Chinese military despite a US blockade.
• The sell-off in technology stocks may herald the long-awaited AI reckoning.
• While the stock market crashed on Monday, some corners of the market jumped, including defensive sectors.
• A federal judge ruled on Monday that Alphabet violated antitrust laws when it paid Apple to be the default search engine for iPhone.

In commodities, bonds, and crypto:

• West Texas Intermediate crude oil fell 0.97% to $72.81 a barrel. Brent crude, the international benchmark, declined 0.90% to $76.12 a barrel.
• Gold was lower by 1.51% to $2,432.40 per ounce.
• The 10-year Treasury yield dropped 9 basis points to 3.70%.
• Bitcoin plunged 14.2% to $49,846.