What kicked off the August US stock market manic panic? 😳 On Friday 2 August, the latest US jobs report showed American unemployment had risen to 4.3% ‘adding to fears’ that the US may be on the ‘precipice’ of recession. The following Monday 5 August, US stocks plummeted, partly fuelled by panicked retail investors, with the Dow falling 2.6%, the S&P 500 dropping 3.0%, and the Nasdaq tumbling 3.4%. 

Report reaction was less about unemployment or even job growth levels, however. Concern centred on the trend of a cooling job market and what it may indicate about the American economy.

‘Job growth is slowing. Labor demand is cooling, and there's nothing that says it'll stop here. And eventually, if businesses don't need workers and they're not hiring as many people, at some point if things slow down enough, they'll start firing people. And that's when you have a recession.’ — Nick Timiraos, WSJ reporter, The Journal

Meanwhile, on the other side of the world… 🌏 Two days prior to the US job data release, the Bank of Japan used the now familiar tool to combat inflation by increasing the cost of borrowing, lifting interest rates up from 0% to 0.1% to 0.25% — something it hasn’t done since 2007. 

Fearing the worst about the US economy following jobs data, days later the Nikkei plummeted more than 10%, recording their biggest losses since ‘Black Monday’ in October 1987 after peaking in July. GM of the investment research department at IwaiCosmo Securities Shoichi Arisawa telling Al Jazeera that Japan’s ‘Domestic equities tanked purely because of the worries that the US economy may be heading to a recession.’ 

How global markets are connected

Meet the carry trade. 💴 A carry trade is where hedge funds and institutional investors — and even some retail investors — borrow low interest currency, like the Japanese yen, and invest in higher yield assets, like US Treasuries, incurring foreign exchange fees along the way. 

The carry trade is effective when the Cboe Volatility Index (VIX) — the indicator of market sentiment  also known as the fear index — is low. High VIX levels can suggest heightened market fear, and since mid-July, the VIX has been tracking slowly upwards.

As the yen strengthened against the US dollar, investors began ‘a rapid unloading of carry trades’, which no longer had high yields. Some concerns remain that there are more carry trades to sell off, potentially shaking global markets again. 

From ‘Manic Monday’ to ‘Turnaround Tuesday’. 📈 The Nasdaq and NYSE both ended last week’s turbulence near where they started, following their ‘best day since 2022’. The fall in volatility after Manic Monday and back to steady levels took just seven trading sessions, while in other volatility events it’s taken an average of 170 trading sessions. 

• The S&P 500 was up around 5% after jumping 2.3% in a day, and is up 17.58% year-to-date (YTD)
• The Nasdaq Composite made a full recovery and is up 19.09% YTD
• The Dow is up 8.51% YTD. 

The climb was not without significant swings leading up to Manic Monday, however. Notably, Big Tech’s Nvidia’s (NVDA) volatility — falling nearly 14% over the past month — has led long time hedge fund manager Mark Spitznagel to share his grim warnings of looming trouble centred around an AI bubble based on his perception of past market patterns. 

Yet showing even expert investors interpret markets differently, ahead of next Wednesday’s Nvidia’s earnings call, and following Nvidia’s 20% recovery last week, Goldman Sachs analysts have determined Nvidia stock is a ‘buy’: 

‘While the reported delay in Nvidia's Blackwell (next-generation GPU architecture) could lead to some near-term volatility in fundamentals, we expect management commentary, coupled with supply-chain data points over the coming weeks, to lead to higher conviction regarding Nvidia's earnings power in 2025.’ — Toshiya Hari and team, Goldman Sachs analyst

August share market volatility is ‘absolutely normal’, coinciding as it does with the US summer, and this year, a US presidential election. And US markets have dropped in value by 10% or more on dozens of occasions since 1990. In the three weeks leading up to August 7 — as the VIX fear index started tracking up — investors and hedge funds had already started selling off stocks, in particular ‘riskier’ assets like the Magnificent Seven (MAG7) tech stocks. With the sell-off costing retail traders, hedge funds and pension funds up to US$6 billion. 

Could a Texas-sized project boost the job market?

Red tape vs red flags for proposed Texas stock exchange? 🚩 It’s hard to ignore Texas when talking about the US economy and job market data. The Lone Star state has ‘fewer regulations and more favorable tax policies’ than any other, with around 7,000 companies relocating there since 2014 — including a moderate ‘tech exodus’. Among them are large market cap tech companies AT&T (T), Oracle (ORCL), Dell (DELL), and notably, Tesla (TSLA), which incorporated in Texas this June. 

Could a proposed national Texas Stock Exchange (TXSE) boost the US economy? 🤠 University of Texas economics professor Bülent Temel told the Texas Standard ‘the very existence of this new stock exchange will have a very positive ripple effect on jobs and business volume inside sectors that would be supporting it, such as the technology firms,’ adding that ‘business volume impacts will be quite significant, even though we can’t really put any numbers to it at this point.’

The TXSE pledges to be ‘more CEO-friendly’, planning lower exchange fees and doing away with ‘regulatory overreach’, such as the Nasdaq’s requirements for board diversity and governance. The relaxing of rules has found favour with some backers too. By June, TXSE Group had raised US$120 million from 12 institutional investors, including BlackRock, and hedge fund firm Citadel Securities.

TXSE Group Chief CEO James Lee says Texas has attracted ‘more Fortune 500 companies than any other state’. He added that ‘this is an opportune time to build a major, national stock exchange in Texas’, and the group may potentially target thousands of Texas private-equity companies to join them.

‘Texas’s booming economy and the strong economic and population growth among states in the southeast quadrant of the US present incredible opportunities for businesses — and ultimately the Texas Stock Exchange.’ — James Lee, TXSE Group Chief CEO, LinkedIn

The TXSE Group plans to file with the SEC this year, and for the proposed Dallas-based electronic exchange to begin trading in 2025, and have its own listings by 2026. 

But launching a competitor exchange is no guarantee of success. While rumours circulate that the TXSE could land Elon Musk’s SpaceX, The New York Times’ Joe Rennison said there are risks of being a small player in the share markets, saying ‘Traders tend to flock to the largest exchanges with the most transactions, because typically more trading activity leads to better prices’.

Markets, by nature, are volatile. Swapping emotions for a long term investing plan is the way to navigate even the most turbulent waters; it’s always better to sip your tea rather than swim in it.

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