International markets plunged overnight, leading to a drop in the U.S. markets on Monday after investor worry about a possible upcoming recession, a panic that has been building for days.
The S&P 500 Index was down 8.6% and the NASDAQ 100 fell 5.4%, as of Monday morning, and tech stocks including Apple, Amazon and Google declined sharply. Investors have purchased U.S. treasuries, leading a decline in mortgage rates.
Greg McBride, chief financial analyst at comparison site Bankrate, said that the "refinancing door has swung open" for people who took out a mortgage at a rate above 7%.
Here's what you should know.
Stock market live updates: How US markets are feeling impact of plunging global markets
What is a correction and what is a recession?
A correction is a market drop of at least 10% from a recent high, which typically occurs about once a year.
According to the World Economic Fund, there is no globally recognized definition of a recession. The National Bureau of Economic Research says a recession is a "significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."
An "earnings recession" occurs when there has been earning declines or negative earnings growth for at least two consecutive quarters. According Forbes, during an earnings recession, a majority of company profits declined "year-over-year for two or more quarters in a row."
A bear market is when a stock or market index falls 20% or more, and a bull market is a sustained rise in stock prices without a bear market, or 20% drop.
How likely is a recession?
While some economists say current market conditions raise the risk of a recession within the next 12 months, others are downplaying concerns.
“The recession fears are overblown,” said Scott Wren, senior global market strategist at Wells Fargo. “It’s not time to panic here.”
Wells Fargo economists Monday said they expect an economic slowdown – not a recession, noting the labor market is in the early stages of weakening and “still some distance away from even the most moderate, modern recession,” which took place in 2001. The bank’s analysis, led by Paul Christopher, head of global investment strategy, also notes that consumer spending has potential to grow as household purchasing power strengthens.
“The recession risk was not zero a month ago. It wasn't zero 6 months ago,” Wren said. “You could probably make an argument that it's a little bit higher today than it was last week, and that's only because the labor market report was weak, but we still think a recession is not going to happen, that it's a relatively low probability.”