Stock market crashes amid weak global cues: Here're some major factors that dampen sentiment

At open, the BSE Sensex was down 1,273.99 points (1.57 percent) at 79,707.96, and the NSE Nifty was down 378.00 points (1.53 percent) at 24,339.70, while in the broader markets, the Nifty MidCap 100 and SmallCap100 indices declined 2.3 percent and 2.5 percent, respectively.

About 439 shares advanced, 2362 shares declined, and 158 shares unchanged in early hours today, according to reports.

Some of the major factors that are driving the bears in trade today as pointed out and explained by experts:

Asian markets sink:

Asia-Pacific markets extended Friday's decline Monday morning, led by Japan's Nikkei index as Nikkei 225 and Topix fell as much as 7 percent in morning deals, before recouping some losses to trade with cuts of over 5 percent.

With this drop, both the Nikkei and Topix are approaching bear market territory, having fallen almost 20 percent from their all-time highs hit on July 11.

Among others, South Korea's Kospi, Australia's ASX200 and Hong Kong's Hang Seng dropped 4.7 percent, 3 percent, and 1 percent, respectively.

Dow Jones, Nasdaq Futures slump:

US stock futures dropped Monday morning as Dow Jones Industrial Average futures fell by 383 points (0.96 percent), while S&P 500 futures and Nasdaq-100 futures dipped 1.6 percent and 2.5 percent, respectively.

The S&P 500 also posted a third straight losing week, falling 2 percent for the week, while Dow Jones Industrial Average snapped a four-week win streak, dropping 2 percent.

Weak US job data:

The recent weekly jobless claims data revealed that the number of US citizens filing new applications for unemployment benefits increased to an 11-month high for the week ended July 27, suggesting softness in the labour market, reports said.

According to reports, initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 249,000 for the week, the highest level since August 2023. 

Earlier, economists polled by Reuters had forecast 236,000 claims for the latest week.

Goldman Sachs increases recession probability in the US:

Goldman Sachs Group Inc. economists have raised the probability of a US recession in the next year to 25 percent from 15 percent.

However, they said there are several reasons not to fear a slump even after unemployment jumped.

Recession fears:

There are fears of the United States entering a recessionary phase, with an indicator known as the Sahm Recession Indicator flashing above the 0.5 mark, indicating the possibility of a recession, reports Moneycontrol.

According to reports, the US experienced a massive hiring slowdown last month (July), adding only 114,000 jobs, compared to the 215,000 jobs monthly average of last year.

The rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy, reports Moneycontrol, adding that with this faltering, all the factors combined contributed to a negative investor sentiment.

Escalating Iran-Israel tensions:

Tensions in the Middle East are growing as Iran, Hamas and Hezbollah have vowed to retaliate against Israel’s assassination of Hamas chief and Hezbollah’s military chief.

Any escalation in the Middle East would send oil prices surging.

However, oil prices are currently at 8-month lows as demand wanes. Therefore, the Middle East will be closely monitored for cues on crude prices, reports Moneycontrol.

Tepid Q1 show:

The earnings growth for the quarter ended June has been weak amid a poor deal environment, record heatwave and lacklustre demand, and it fell around 2 percent on-year, Moneycontrol reported, citing Motilal Oswal.

For the 30 Nifty 50 companies that have reported their earnings so far, there is a 0.7 percent year-on-year (yoy) growth but a 9.4 percent quarter-on-quarter (qoq) decline in net profits, while the aggregate performance was hit by a sharp drag from global commodities.

Absence of fresh near-term triggers:

Investors were looking towards the earnings season, the Union Budget 2024, and the US Federal Reserve to provide further cues to the markets, reports Moneycontrol.

However, with all of these completed, the markets are lacking any fresh triggers that could drive momentum, according to reports.

Technical levels:

The Nifty 50 index last Friday (Aug 2) faced a breakout failure as it did not witness follow-through buying interest on the upside, and in the near term, the support levels for the Nifty 50 index are expected between 24,400 and 24,300.