An August stocks slump is ‘absolutely normal’ — but strategists urge caution on buying the dip

Strategists on Friday urged investors to take a cautious approach to a global stock market sell-off, warning it may be too early to buy the dip given that shares "look vulnerable to further falls."

U.S. stocks kicked off August sharply lower as fresh data prompted fears of a worsening economic outlook.

Initial jobless claims rose the most since August 2023. The ISM manufacturing index, a barometer of factory activity in the U.S., came in at 46.8%, worse than expected and a signal of economic contraction.

The weak data led investors to worry the Federal Reserve may be behind the curve in cutting interest rates to fend off a recession.

European stocks fell around 1.6% on Friday morning, tracking a slide on Wall Street. In Asia, Japan's benchmark indexes tumbled more than 5% on Friday, with the Nikkei index notching its worst day in over four years, Reuters reported.

Cedric Chehab, global head of country risk at research firm BMI, said a combination of factors were at play amid souring market sentiment. However, he insisted "corrections like this are absolutely normal."

"The sell-off started about a week and a half ago but then it started to escalate down lower in the middle of this week. That was triggered by several things," Chehab told CNBC's "Street Signs Asia" on Friday.

"First of all, the hawkish Bank of Japan caused an implosion of the carry trade over a short-term basis. We also had bad manufacturing data out of the U.S. and some employment sub-indicators which scared markets," he continued.

"And then overnight, we saw a lot of volatility in some of the major earnings. And all of that helps push equity markets, which had been quite expensive, even lower."

Chehab said one factor that some investors appeared to be forgetting