The Blubber

In the span of three weeks, $6.4 trillion has now been erased from global stock markets, per Bloomberg.

The figures displayed on trading screens Monday were startling, even for seasoned market observers. In Tokyo, the Nikkei dropped by 12%. In Seoul, the Kospi fell 9%. And when trading began in New York, the Nasdaq plummeted 6% almost instantly. Cryptocurrencies tumbled, the VIX—an indicator of stock market volatility—soared, and investors flocked to Treasury bonds, the safest investment available.

Whether Monday's dramatic movements represent the final crash of a global selloff that began last week or the start of a prolonged downturn remains uncertain. On Tuesday, some of the hardest-hit markets bounced back, with the Nikkei surging more than 10% and U.S. stock indexes gaining 1%.

One thing is clear: the foundational assumptions that had supported financial market gains for years—such as the invincibility of the U.S. economy, the rapid transformation of business by artificial intelligence, and Japan’s reluctance to raise interest rates—have been challenged. In hindsight, these assumptions seem somewhat naïve. Recent evidence has undermined each one: the July jobs report in the U.S. was weak, Big Tech’s AI-driven earnings were disappointing, and the Bank of Japan raised rates for the second time this year.

This one-two-three punch has jolted investors into recognizing the risks of previously high-flying assets, such as Nvidia Corp. shares that surged 1,100% in less than two years, junk-rated loans bundled into bonds, or borrowing in Japan to invest in high-yield assets in Mexico. In just three weeks, the global stock market meltdown has wiped out approximately $6.4 trillion.

“It’s the great unwind,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. In trading terms, trying to time the market for a falling asset is like attempting to catch a falling knife. Today, Varathan noted, “there are falling knives everywhere.”

This kind of market panic carries significant risks. If the selloff continues unchecked, it could disrupt the financial system, reduce lending, and potentially push the global economy into the recession many now fear. This has led to calls for the Federal Reserve to consider cutting interest rates, possibly even before the next scheduled meeting in September. For now, however, officials are holding off.