It took Japan only a few days to nearly erase its year-long stock market rally. The first three days of August saw the market plummet by more than 20%, with the worst daily sell-off in its history occurring on Monday, when it fell by 12%. This led to a widespread global market rout, leaving investors questioning whether another financial crisis was on the horizon.
However, just as panic began to set in, the stock market staged a remarkable recovery on Tuesday, rising by 10% – its largest single-day rise. The surge was so intense that the Osaka Exchange had to temporarily halt the trading of Nikkei 225 futures to prevent excessive buying.
The primary catalyst behind this rollercoaster ride was a weaker-than-expected July jobs report in the US. However, the reason why this jobs report had such an impact can be attributed to the Sahm Rule, a concept making waves in the financial world. The rule, developed by economist Claudia Sahm, has unfailingly observed that the initial phase of a recession has begun when the three-month moving average of the US unemployment rate rises at least half a percentage point above its 12-month low.
