Stocks falling in August is ‘absolutely normal’ — but strategists urge caution when buying stocks on a decline – NBC New York

• US stock markets started August in the red as new data raised concerns about a worsening economic outlook.
• The weak data left investors worried that the Federal Reserve might not be able to keep up with cutting interest rates to prevent a recession.

Strategists on Friday urged investors to take a cautious approach to the global stock sell-off, warning it may be too early to buy at the bottom given that stocks “look vulnerable to further declines.”

US stock markets started August in the red as new data raised concerns about a worsening economic outlook.

The number of new jobless claims rose the most since August 2023. The ISM manufacturing index, a barometer of U.S. factory activity, was 46.8%, worse than expected and a signal of an economic recession.

The weak data left investors worried that the Federal Reserve might not be able to keep up with cutting interest rates to prevent a recession.

European shares fell about 1.6% on Friday morning, tracking Wall Street. In Asia, Japanese benchmarks fell more than 5% on Friday, with the Nikkei index suffering its worst day in more than four years, Reuters reported.

Cedric Chehab, global head of country risk at research firm BMI, said a combination of factors had played a role in the deteriorating market sentiment. But he insisted that “corrections like this are absolutely normal.”

“The sell-off started about a week and a half ago, but then it started escalating downward in the middle of this week. It was triggered by a couple of things,” Chehab said Friday on CNBC’s “Street Signs Asia.”

“First, the hawkish Bank of Japan caused the carry trade to implode in the short term. We also had bad U.S. manufacturing data and some employment sub-indicators that spooked markets,” he continued.

“And then overnight we saw a lot of volatility in some of the headline earnings. And all of that is helping to push stock markets, which were pretty expensive, even lower.”

Chehab said some investors seem to forget that there is typically a seasonal increase in stock market volatility between July and October.

“So this shouldn’t be entirely unexpected given the historical patterns around calendar effects in stock markets, especially after the fact that there was such a big rally in U.S. and global stocks.”

Asked if the sell-off means investors should think about hitting the panic button, Chehab replied: “No, I don’t think so. And that’s because from a technical perspective, there’s a lot of support in terms of moving averages and key technical levels.”

He added that “corrections like this are absolutely normal, especially when you have momentum that is exaggerated upward.”

Too early to buy when the rate is low?

The U.S. central bank kept interest rates unchanged on Wednesday, although Federal Reserve Chairman Jerome Powell gave investors some hope by signaling that a rate cut in September was possible.

Shane Oliver, head of investment strategy and chief economist at investment manager AMP, said a correction was clearly starting.

“Stocks soared in July on better inflation news, rising optimism about lower interest rates coming and optimism about IT and AI-related earnings,” Oliver said in a research note published Friday.

He added that while AMP believes lower interest rates are likely to boost stock values ​​over the next six to 12 months, assuming a recession can be avoided, global equities “look vulnerable to further declines, suggesting it is too early to buy stocks at a trough at the moment”.

Market attention now turns to the closely watched nonfarm payrolls report due out Friday, as investors seek clues about the pace and scale of the Federal Reserve’s rate cuts in the coming months.

—CNBC’s Pia Singh and Samantha Subin contributed to this report.