How fashion was affected by the global stock market crash

On Monday, August 5, global markets were shaken by fears of a US recession, leading to a dramatic stock market crash. Investors in Asia, Europe, and North America (including Warren Buffett, who has accumulated $277 billion in cash) quickly divested, causing widespread declines. This turbulence has led many to wonder if we are witnessing a historic stock market crash, similar to the 2008 crisis or Black Monday in 1987, or if it is simply an overdue correction after a period of strong returns. The market meltdown began after the US Federal Reserve hinted at its July 31 meeting that interest rates might soon be cut. Initially seen as a positive stimulus for shares, sentiment quickly reversed as investors interpreted the impending rate cuts as a sign of a weakening US economy. Economic indicators, including manufacturing, durable goods, and, crucially, jobs and payroll data, have raised doubts about the health of the economy. The "Sahm Rule", a reliable recession indicator triggered by a rapid rise in the unemployment rate, signaled a potential recession, having correctly identified every recession since World War II.

Shane Oliver, chief economist at AMP, told The Guardian that «recession fears are back with a vengeance, particularly in the US.» Nick Healy, a portfolio manager at Wilson Asset Management in Sydney, pointed out that weaker-than-expected US data triggered a strong market reaction, describing it as an unwinding of positions but warning against drawing long-term conclusions from one month of data. After a weekend break to digest the news, Asian markets saw a crash on Monday, which then spread to European and American markets throughout the day. Wall Street's CBOE Volatility Index jumped above 65, a level not seen since the pandemic, before stabilizing. The S&P 500 lost 3% on Monday, while the tech-focused Nasdaq shed 3.43%. Despite these losses, both indices remain up more than 9% since January. The fashion industry was particularly hard hit by the market crash. Shares of major fashion and luxury brands recorded significant losses. In Tokyo, Fast Retailing fell 9.6% to 36,470 yen. Mytheresa dropped 6.8% to $3.71. Macy’s Inc. declined 4.7% to $15.18. Salvatore Ferragamo decreased by 4.5% to 7.63 euros. Target Corp. fell 3.8% to $133.87. Nike Inc. fell 3.5% to $71.42. The Estée Lauder Cos. fell 3.5% to $92.20. Burberry Group dropped 3.3% to 7.06 pounds, and Kering fell 2.6% to 265.35 euros. A quick but still not dramatic decline that reflects the sector's vulnerability to economic uncertainties and shifting investor sentiment.

These sharp declines were part of a broader market reaction to global economic conditions. The market had been buoyed by optimism about AI technologies, expectations of cooling inflation, and robust job markets. However, Japan's decision to raise interest rates after a long period of low rates added to the volatility. The unwinding of the yen carry trade, where investors borrow cheaply in yen to buy higher-yielding assets in the West, added further pressure to the markets. As Joe Brusuelas, chief economist at RSM, explained to WWD, «the Japanese yen has increased against the dollar by about 18% over the past month, making yen-denominated debt much more expensive. So they're selling off US equities to pay off these [debts]». Much will be decided in the coming weeks, with the Federal Reserve expected to cut interest rates - although the extent of the cut remains uncertain. Undoubtedly, it is a delicate period, with large sums of money moving between markets and investors cooling their enthusiasm for AI and Bitcoin, as they have lost patience with both the monetization timelines and the risk of over-betting on a business that might crumble. According to many, investors might look for the next big opportunity, but volatile retail and fashion sectors may not be the focus in the coming months.