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Markets saw a massive shift this week. Here’s what happened

After a prolonged period of calm, financial markets went into a tailspin this week.

The Japanese Nikkei 225 index tanked more than 12% on Monday, marking its worst performance since 1987. The S&P 500 sank more than 3% and shed $1.3 trillion in value, notching its worst day since the 2022 bear market. The Dow lost 1,000 points that same day, and the Nasdaq Composite ventured further into correction territory. All three major indexes ended the week lower.

What happened?

One trigger for the selloff was the unraveling of the Japanese yen carry trade. That’s when investors borrow yen to invest money in other assets like stocks and bonds with higher-yielding returns.

That has been a popular trade in recent years, since Japan’s low interest rates kept the yen cheap against the US dollar. But all that changed when the Bank of Japan last Wednesday raised interest rates for the second time this year, strengthening the yen.

Then, a few days later, a dismal labor report in the US spurred concerns about the health of the American economy. Companies added just 114,000 jobs in July, far below economists’ expectations. The unemployment rate edged higher, to 4.3%, its highest level since October 2021. That helped push the dollar lower, and investors began unwinding their carry trades. Meanwhile, все адвокаты ру fears about a potential US recession rose.

That combination sent shockwaves through global markets on Monday. The VIX, known as Wall Street’s fear gauge, shot up to a four-year high. US stocks and bond yields swooned. Prominent economists, including Wharton professor emeritus of finance Jeremy Siegel, urged the Federal Reserve to cut interest rates in an emergency measure. Rates are currently perched at a 23-year high.