Investors hoped for direction from earnings, the Budget, and the US Federal Reserve, but the markets are missing fresh momentum.
Benchmark indices Nifty and Sensex began weakly and continued to drop for the second day in a row. This decline was caused by weak global signals and worries about a possible recession affecting various sectors.
Meanwhile, US futures were significantly down, with Nasdaq futures declining over 2 percent. The Nasdaq entered correction territory, being down 10 percent from its all-time highs. In Asia, Japanese markets led the losses, with the Nikkei and Topix indices plunging up to 7 percent.
1. Recession Fears
Concerns are mounting that the US may be entering a recessionary phase, as the Sahm Recession Indicator has risen above 0.5, signaling a potential recession. What caused this indicator to trigger?
In July, the US saw a significant slowdown in hiring, with only 114,000 jobs added, compared to last year’s monthly average of 215,000. Additionally, unemployment surged to around 4.3 percent, the highest since October 2021.
Global stock markets had rallied based on the widespread expectation of a soft landing for the US economy. However, with this scenario faltering, negative investor sentiment has taken hold. On Friday, the US markets experienced their worst day since 2020, driven by these combined factors.
2. Bank of Japan Policy
The US markets aren’t the only ones facing challenges; Japan’s Nikkei 225 is also under pressure after the Bank of Japan raised its benchmark interest rate on Wednesday. This increase caused the Japanese yen to strengthen against the US dollar.
Previously, low interest rates had made the yen attractive for a forex strategy called “carry trade,” where investors borrowed in yen to invest in higher-yield assets. However, with the BoJ’s rate hike, forex traders using this strategy could experience significant difficulties, adding further turmoil to global markets.
3. Iran-Israel tensions
Tensions are rising in the Middle East as Iran, Hamas, and Hezbollah have vowed to retaliate against Israel’s assassination of the Hamas chief and Hezbollah’s military leader.
Any escalation in the region could drive oil prices up. Currently, however, oil prices are at an 8-month low due to waning demand, making the Middle East a focal point for crude price indicators.
“Geopolitical tensions in the Middle East are another contributing factor. Additionally, the unwinding of the yen carry trade is negatively impacting the Japanese market. The Nikkei has plummeted by over 4 percent.
4. Weak Q1 performance
Due to a challenging deal environment, record heatwave, and weak demand, earnings growth for the quarter ending in June has been sluggish, with a year-on-year decline of about two percent.
Among the 30 Nifty 50 companies that have reported earnings so far, there is a 0.7 percent year-on-year growth, but a significant 9.4 percent quarter-on-quarter drop in net profits. This overall performance has been notably affected by a downturn in global commodities.
Major players like HDFC Bank, Tata Motors, ICICI Bank, Maruti, and TCS have contributed to the aggregate performance. However, the primary drivers of growth have been the BFSI and Auto secto
5. Lack of new short-term triggers
Investors had been anticipating guidance from the earnings season, the Budget, and the US Federal Reserve, but with these events now concluded, the markets lack new momentum drivers.
“Two main negative factors are affecting the market: the absence of notable positive surprises in Q1 June earnings from Corporate India and overbought technical conditions,” says Prashanth Tapse.
The sectors most affected were Nifty Auto, Realty, and Metal, each falling nearly 3 percent.
Among the stocks, Sun Pharma and HUL emerged as the top performers on the Nifty, while Tata Motors, Hindalco, Shriram Finance, Tata Steel, and ONGC were among the underperformers.
Power of Algorithms in Options Trading, Try Spider Now: Register Now
If you’d like to know how we analyze the market and provide accurate levels every day. then click on the Free Demo button below and change your trading life for good. 5X returns are possible in options trading If you have Spider Software in your trading system.
Disclaimer: The information provided in this Blog is for educational purposes only and should not be construed as financial advice. Trading in the stock market involves a significant level of risk and can result in both profits and losses. Spider Software & Team does not guarantee any specific outcome or profit from the use of the information provided in this Blog. It is the sole responsibility of the viewer to evaluate their own financial situation and to make their own decisions regarding any investments or trading strategies based on their individual financial goals, risk tolerance, and investment objectives. Spider Software & Team shall not be liable for any loss or damage, including without limitation any indirect, special, incidental or consequential loss or damage, arising from or in connection with the use of this blog or any information contained herein. 
