Investors have no reason to panic over the ongoing market sell-off. Instead, they can look at the situation as a buying opportunity.

“The current market sell-offs are presenting more opportunities. Even before the current sell-offs, Asian and EM equities were attractively valued versus the US market. As the Fed starts its rate-cutting cycle, we are likely to see the US dollar weaken, and this is usually favourable for Asian and EM assets,” says Sundeep Bihani, lead portfolio manager, regional Asia equity, and Navin Hingorani, portfolio manager, global emerging markets, at Eastspring Investments.

On Monday, the S&P 500 dropped 160.23 points or 3% to close at 5,186.33, its largest single-day loss since 2022, while other major benchmarks globally also declined sharply.

Market analysts, however, say the sell-off was merely a reaction to the underwhelming earnings from the Magnificent Seven technology stocks, combined with the release of negative data on rising jobless claims, a slowdown in manufacturing growth, and a rise in US unemployment to 4.3%, the highest level since 2021.

Thus, some investors are fearful of renewed prospects for a US recession, triggered by the possibility that the economy may be slowing down more sharply than expected.

“Global equity markets are experiencing significant turmoil due to a combination of weakening economic data, geopolitical tensions, and unmet expectations from the Federal Reserve, leading to a sharp decline in risk appetite. This has resulted in increased volatility and a pronounced market correction,” says Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions.

However, Aninda Mitra, head of Asia macro and investment strategy at BNY Advisors Investment Institute, says a near-term recession is still odds-against (i.e., less than a 50% chance), citing the following factors:

• Job creation is still net positive (114,000 jobs were created in July alone);
• The unemployment rate is low and could stay relatively low, although the trend is concerning;
• Corporate earnings are growing and profitability is high, which makes widespread layoffs less likely;
• The US Federal Reserve has capacity to cut interest rates deeply and stimulate the economy as needed; and
• GDP growth estimates remain resilient.

The US employment report for July showed softer-than-expected job gains and a further rise in unemployment that triggered the Sahm Rule, named after Fed and White House economist Claudia Sahm, which indicates a recession has started when the three-month moving average of the US unemployment rate is 0.5 percentage points or more above its lowest during the previous 12 months.

“We were already expecting a slowdown to below-trend growth in the US in the second half, with downside risks. We now expect three 25bp rate cuts at the September, November, and December meetings. Increased labour market slack and progress on disinflation suggest monetary policy could be overly restrictive, and a quicker return to neutral is appropriate from a risk management perspective,” says Frederik Ducrozet, head of macroecomic research at Pictet Wealth Management.