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New Zealanders woke to headlines about sharemarket carnage overnight. The S&P 500 closed down 3 percent, the Nasdaq by about 3.4 percent, the Nikkei by a dramatic 12.4 percent, and even the ASX 3.7 percent - a A$100 billion "wipe out" of investor value.
So what's caused this?
There are a few factors that have combined to create the downturn that has stretched around the globe, including underwhelming earnings reports from listed companies, and softer US economic data.
Earnings
Westpac chief economist Kelly Eckhold said there had been a number of big global firms that had downgraded their earnings expectations in the past few weeks.
Intel was a high-profile one, recording the biggest share price drop since 1974 last Friday after it reported softer revenue and significantly weaker earnings per share - as well as plans to lay off 15 percent of its staff.
Eckhold said the weaker results had already sparked discussion that US consumer spending was looking weaker than it had for a while and so profitability for many companies was going to be tougher than it had been, putting downward pressure on share prices.
Weaker jobs data
That was then compounded by a softer-than-expected unemployment report from the US. Fewer jobs were added than expected in July and unemployment hit the highest level since October 2021.
That prompted worries that the country was heading for a recession because the "Sahm rule" was triggered. This indicates a recession when the three-month moving average of the US unemployment rate is 0.5 percentage points or more above the lowest point of the previous 12 months.
But Eckhold said there was other data that indicated things were not so weak. "Overnight the ISM services sector indicator bounced back from the relatively low levels registered in the previous month."
Interest rates
Interest rate movements have been blamed for the Japanese sharemarket plummeting. Namely that interest rates in Japan might move up at the same time that the United States' rates are moving down.
This would be a change from the dynamic that has persisted for decades as Japan dealt with a low inflation environment.
Eckhold said Japan's drop was still a "bit of a head scratcher."
"There's nervousness that it may be challenging for the Japanese economy to deal with a tightening cycle. The other thing that's going on there is Japanese equities have risen pretty significantly this year. There was a sense they may also have been overvalued, particularly if they're moving to a higher, more normal interest rate environment."
Tech stocks
Shares in technology companies have been particularly affected by the downturn, which has weighed on the Nasdaq, as well as the Japanese and Taiwanese markets.
"If you look at what's driven the market performance over the past 18, 24 months, large cap tech stocks have been the main driver behind the performance of the US market," said Dean Anderson, founder of KiwiSaver provider Kernel.
"They've got further ahead than the wider market with expectations about revenue growth and earnings growth. They are a bit more sensitive now to the potential sensitivities of change in the economic environment."
He said whether tech stocks' weakness continued would depend on how technology, particularly AI, unfolded over the next few years.
"It's not going to be a smooth ride. The markets may get slightly ahead of themselves, people may overestimate how much AI will disrupt our future. We're entering a new era... while we go through this process and these AI companies and tech companies start to implement AI more broadly we will have a few ups and downs as we see what that means for revenues and productivity in the wider economy."
New Zealand does not have the same exposure to tech companies on the NZX, which is expected to lessen the impact here a bit.
Geopolitical tensions
Eckhold said the other thing to keep in mind was the geopolitical environment, which could make investors nervous.
"There is quite a lot of concern in the Middle East that Iran is going to attack Israel and there are some significant shifts in military activity in that region of the world. These are all things that don't help risky assets."
And what about bitcoin?
Even crypto assets haven't been immune. Bitcoin is down 15 percent over the past five days.
Rupert Carlyon, founder of KiwiSaver provider Koura, said bitcoin was doing what would be expected in the conditions. "When markets catch a cold, bitcoin catches Covid and that's what we're seeing here… what's happening in the market is absolutely petrifying everyone at the moment."
He said it seemed that investors had been "waiting on a knife edge" for the better part of the last six months for a reason for prices to fall. "This has been the spark everyone was looking for."
How bad is it really?
Carlyon said the drop needed to be put in context. "Up until the end of July the US market was up 22 percent and the correction has come, we're down about 5 percent over the last two days. What's really interesting is we're back to where we are in May... To me it feels more as though it's a reaction of people who have been waiting for some bad news. Whether it's a wholesale shift or not it's too early to say."
Eckhold said he expected to see volatility continue, and there could be swings in either direction over the next few days.
"The good news is that after the Japanese fall, it didnt' result in the same magnitude falls in the Europe and US. In the GFC we had rounds where weakness in Asia would cause weakness in Europe and America than go back to the US in a death loop. We didn't see that this time."
He said sometimes the New Zealand dollar would come under pressure in these types of conditions but so far it has held up. "It's different than in the GFC when the NZD was getting trashed."