Australia’s share market has been rocked by its worst two-day decline since the onset of the pandemic, as mounting fears of a US recession triggered a mass exodus of investors. The dramatic sell-off erased over $160 billion in value from local stocks, with the S&P/ASX200 index plummeting 3.7% on Monday to close at 7,649.
The staggering losses, including more than $105 billion shed in a single day, have left the Australian market reeling. The downturn was part of a broader global sell-off that spread across Asia, with so-called risk assets—including equities and certain currencies like the Australian dollar, suffering significant declines, while safe-haven assets such as bonds saw a rally. Japanese stocks were among the hardest hit, experiencing one of their worst daily sell-offs since the Black Monday crash of October 1987. The Nikkei share average plunged 15% over just three sessions, according to Nikkei Asia, highlighting the extent of the market turmoil.
The volatility was triggered last week when the US Federal Reserve indicated that interest rates would soon be cut. Initially, this news was welcomed as a potential stimulus for shares, sparking a sharp rally. However, the optimism quickly evaporated as investors began to interpret the impending rate cuts as a sign of deeper economic trouble in the world’s largest economy.
This shift in sentiment was solidified by disappointing US economic data released on Friday, which showed a slowdown in hiring and an increase in the unemployment rate to 4.3%, the highest level in nearly three years. The weak jobs data triggered the Sahm rule, a recession indicator, further fueling fears that a US recession may be imminent.
The ASX’s steep decline follows a period of strong gains driven by the tech sector, particularly chip maker Nvidia. While the recent plunge was largely driven by developments in the US, local factors—such as the Reserve Bank of Australia’s impending interest rate decision—could start to influence the market’s trajectory in the coming days.
Luke McMillan, Head of Research at Ophir Asset Management, cautioned against drawing definitive conclusions about the US economy’s trajectory. “There are still a number of support pillars in place, with corporate and household balance sheets not overly geared,” McMillan said. “Additionally, there’s significant fiscal stimulus coming from the US government, which will continue, especially in an election year.”
Historically, stock markets have tended to rally during election cycles dominated by populist spending measures, leaving some hope that the current downturn may be short-lived.
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