WSJ What’s News - U.S. Recession Fears Fuel Stock-Market Plunge

Episode Date: August 5, 2024

P.M. Edition for Aug. 5. The Dow sank more than 1,000 points after fears of a slowing U.S. economy sparked a global stock sell-off. The question on investors’ minds: Did the Federal Reserve wait too long to cut interest rates? Chief economics commentator Greg Ip has more. Plus, Alphabet’s Google loses its federal antitrust case. Francesca Fontana hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Summer's here and you can now get almost anything you need delivered with Uber Eats. What do we mean by almost? You can't get a well-groomed lawn delivered, but you can get chicken parmesan delivered. Sunshine? No. Some wine? Yes. Get almost, almost anything delivered with Uber Eats. Order now. Alcohol in select markets. See after details. Fears of a U.S. recession sparked a global market meltdown.

And the question on everyone's mind, did the Federal Reserve wait too long to cut interest rates? It's still not clear that inflation has been fully pushed back towards the Fed's 2% goal. So I think it's still too early to think that the Fed has to break the glass and cut interest rates now. But as they say, watch this space. Plus, more tensions are brewing in the Middle East amid warnings of an imminent Iranian attack on Israel. It's Monday, August 5th. I'm Francesca Fontana for the Wall Street Journal.

This is the PM edition of What's News, the top headlines and business stories that move the world today. A steep selloff started in Japan's stock market and spread across the globe. As U.S. indexes plunged and volatility spiked, the Dow Jones Industrial Average lost more than 1,000 points, while the S&P 500 lost 3% and the tech-heavy Nasdaq fell 3.4%. Here to walk us through the market's mayhem is WSJ reporter Jack Pitcher. Jack, we've seen volatility and unexpected moves in the market recently, like the big rotation out of tech giants and into small cap stocks, for instance.

But what made today's activity different? Last week on Wednesday, at the conclusion of the Fed meeting, the central bank held rates steady and signaled that they might start cutting at the next meeting in September. Then on Friday, we had a jobs report that was worse than pretty much anyone on Wall Street expected. It showed the unemployment rate going up to the highest level in several years and the economy adding quite a bit fewer jobs than people expected. Now you're seeing markets sell off. People are wondering if the economy is not as good as people thought and how to trade that. Looking forward from today's nosedive, does it seem like the worst is over or is there more turbulence yet to

come? Heading into this morning after there was a really deep sell-off in Japan, I think there was a lot of borderline panic as people saw different measures of volatility going up to the highest level in years. Stock futures were down quite a bit. As Monday went on, the market calmed down a little bit. But these things rarely play out over just one day, and we definitely could be in for more turbulence going forward. That was my colleague, markets reporter Jack Pitcher. At the center of this global market sell-off are concerns about a slowing US economy.

Last week, traders digested the Fed's decision to keep interest rates unchanged and Friday's disappointing jobs report. Now, worried investors are debating one big question. Has the Fed moved too slowly in cutting rates? Here to explain is chief economics commentator Greg Ip. Greg, what's driving these fears of recession? There's a couple of factors at work. I think markets began to weaken sometime last week. Actually, before even we got the jobs report roughly around when the Bank of Japan raised

interest rates that caused a sell off in Japanese markets and that seems to have spread to other markets. So that seems to be one of the major factors going on here. Separately on Friday, we learned that job growth was quite weak, the weakest in several years, and that the unemployment rate had risen to 4.3%. And in fact, the unemployment rate has risen by an amount that in the past has generally been associated with recessions. So I think you have a broader fear right now that the U.S. is in or is entering a recession, and the Fed has been too late to respond to that.

What might the Fed have missed in putting off rate cuts? The Fed has two mandates. One is full employment and the other is price stability. And we're at one of those delicate moments where it's not necessarily clear that there is one set of actions it can take that can solve both sides of that problem. And in the end, they decided that the risk of more bad news on inflation was the risk that they thought was worse. And so they were not going to cut interest rates for now. But I think what the markets and a lot of economists have now concluded is in fact, there were more risks on the other side that in fact, the labor market was more

of a threat. And we had, as you know, the rise in unemployment in the month of July, but there were other telltale signs. The number of first-time claims for unemployment insurance have been high recently. A couple of companies like McDonald's and Delta Airlines have warned investors that demand seems to be slackening. And we've seen signs for a number of months now that lower-end consumers in particular have been struggling to make payments on their credit card debts and their car loans and things like that. All of those things sort of added up to a kind of a unsettling picture of where the economy was going. Looking forward, what options does the Fed have to course correct between now and September?

Since the Fed did tell us last Wednesday that they were more likely to lower rates soon than not, in some sense the market has already, quote, eased, unquote. You've seen long-term bond yields come down a fair bit since Wednesday, and that will already be providing some relief to the economy, such as via lower mortgage rates, which will provide a little bit of a lift to the housing market. And the Fed can further strengthen that message, perhaps by what we call open mouth operations, which basically means Fed officials go out and they give speeches and they say, hey, we're on the case, we know what's going on. Don't worry, we're going to adjust interest rates correctly.

In the past, there have been situations when the outlook was deteriorating so rapidly that the Fed decided it did not have the luxury of waiting until its next scheduled meeting and it acted to cut interest rates in between meetings. I don't think we're there yet. The sell-off in the market to date it looks more like a correction of some excesses, for example people being a little too optimistic about artificial intelligence. It doesn't look like a you know the harbinger of a crisis like we had in 2008 and it's still not clear that inflation has been fully pushed back towards the Fed's 2% goal. So I think it's still too early to think that the Fed has to break the glass and cut interest rates

now. But as they say, watch this space. That was WSJ Chief Economics commentator Greg Ip. Today's turmoil in the markets has put economic uncertainty in the spotlight. And while data may show that factors like inflation are easing, your real-life economic experience might feel different. What's your view? From food to housing, health care to utilities, what costs that are a big part of your budget are still going up, which aren't? And overall, how confident are you that your overall situation is going to get better? Send a voice memo to wnpod at wsj.com or leave a voicemail with your name and location at

212-416-4328. We might use it on the show. Coming up, more people are using cannabis daily than alcohol, putting more drivers using the drug behind the wheel and more people on the road at risk. That's after the break. Summer is like a cocktail. It has to be mixed just right. Start with a handful of great friends.

Now add your favorite music. And then finally, add Bacardi rum. Shake it together. And there you have it, the perfect summer mix. Bacardi, do what moves you. Live passionately, drink responsibly. Copyright 2024. Bacardi, its trade dress and the bat device are trademarks of Bacardi and Company Limited. Rum 40% alcohol by volume. In corporate news, Alphabet's Google lost its federal antitrust case, with a judge ruling that it engaged in illegal practices to preserve its search engine and text advertising monopolies.

The outcome is a major antitrust victory for the Justice Department in its effort to rein in the tech giants of Silicon Valley. A Google spokesperson didn't immediately respond to a request for comment. In overseas news, the Middle East braced for another round of violence today, amid warnings of an Iranian attack on Israel. On a call with Group of Seven foreign ministers yesterday, U.S. Secretary of State Antony Blinken said Iran could attack Israel within 24 to 48 hours. That's according to two diplomats briefed on the call. U.S. officials and their international partners have been working to try and contain tensions in the Middle East, following last week's assassinations of Hamas's political leader

and a senior leader of Hezbollah. More people are using cannabis daily than alcohol, putting more drivers using the drug behind the wheel and placing people on the road at risk. A 2023 study in the International Journal of Drug Policy found that the legalization of marijuana likely accounts for an additional 1,400 traffic fatalities in the U.S. each year. But it's difficult to determine whether a driver has used the drug because the psychoactive component that makes people high, THC, isn't as easy to detect as alcohol. And that's leaving law enforcement scrambling to identify impaired drivers who shouldn't be on the road. My colleague, Anthony Bansi, spoke with Wall Street Journal health and science reporter Julie Wernau about how cannabis impacts drivers and what law enforcement is doing about it. A lot of drivers don't actually realize that cannabis impairs your driving, but actually there's been some pretty significant studies showing that people sometimes up to three hours

after using cannabis do things like weave around like you would if you were drunk. There's delayed reaction time. People have a sort of distorted view of time. Time speeds up, time speeds down. Those are things that are really critical for driving. And so it actually is an impairing substance for driving. Julie, I know for alcohol they have the breathalyzer, but is there anything similar to that for testing marijuana?

The short answer is no. Marijuana doesn't work the way alcohol does. And so if you were to give a blood test, for instance, like you would with alcohol, to find out how much THC is in a person's blood, It so quickly leaves the blood system that you wouldn't have any idea that that person actually was just starting to feel the effects of marijuana and becoming significantly impaired. What is the legal recourse for driving while impaired on marijuana?

There's differing laws in different states. Some states have a completely zero tolerance policy. Other states did actually attempt to create some kind of number for a legal limit for THC in your blood. But scientists say that's really not based in science. What ends up really happening most of the time is that these cases get argued in court and the word of law What ends up really happening most of the time is that these cases get argued in court and the word of law enforcement ends up being a big part of the case. If they can piece together

that someone was weaving or acting in some way high, that they found paraphernalia, that they found THC in their blood and sort of paint a picture that shows impairment, then they're more likely to be able to prosecute a case like that than if they only have one piece of the puzzle. That was WSJ health and science reporter Julie Wernow speaking to my colleague Anthony Bansi. And that's What's News for this Monday afternoon. Today's show was produced by Anthony Bansi and Pierre Bienamé, with supervising producer Michael Kosmitis. I'm Francesca Fontana for The Wall Street Journal.

We'll be back with a new show tomorrow morning. Thanks for listening.