It wasn't the end of the world. Market indexes down 3.0% in a day is a big deal, but it bears no comparison to October 1929 when the stock market fell 21% over two days or October 1987 when the stock market fell 21% in one day.

What caused the Aug. 5 mini-crash? There are several suspects. The employment report issued on Friday, Aug. 2 showed a decline in job creation and an uptick in the unemployment rate.

Neither move was extreme but it got the markets' attention. In fact, the Aug. 5 decline actually started on Aug. 2, giving the two-day decline a greater impact.

It's also the case that late July and early August was when many companies, especially Big Tech, reported their earnings for the quarter ending June 30, and offered their forward guidance.

Hey, AI: Show Me

Many of these reports showed huge expenditures for artificial intelligence (AI) with little or no gains in revenue. That was enough to cause market analysts and investors to reprice the entire sector.

This "show me" attitude toward AI drove many huge stocks such as Nvidia and Samsung lower even before the two-day rout on Aug. 2 and 5.

Finally, there's ample evidence that the economy is now in a recession. There's something much bigger than the markets behind all of this. It's the economy. I've been warning about a recession for a long time — now it's here.

Last Friday's unemployment report was a sign. Still, unemployment is a lagging indicator. It means the recession probably began in June or even May. We won't know for a few more months when the National Bureau of Economic Research makes its unofficial "official" call.

This recession could be severe based on excess inventories (that need to be dumped) and a host of other technical indicators. A protracted recession is consistent with my forecast for a long, slow grind down in stocks as discussed below.