Market Update: U.S. Stocks Capped by Rising Interest Rates; Bitcoin Price Volatility Retreats

U.S. stocks traded mostly lower Tuesday, as fears over rising interest rates put a firm cap on the major indexes. Meanwhile, crypto markets continued their directionless path amid lower than normal trade volumes.

Stock Rally Under Pressure

The large-cap S&P 500 Index declined 0.1% to close at 2,880.34, with five of 11 primary sectors contributing to the declines. Losses were largely concentrated in materials shares, which plunged more than 3%. Industrials stocks also fell 1.5% on average. On the opposite side of the spectrum, energy shares outperformed the market, rising 0.9% on average.

The Dow Jones Industrial Average declined 56.21 points, or 0.2%, to 26,430.57. Meanwhile, the technology-focused Nasdaq Composite Index pared gains to settle flat at 7,738.02.

A measure of 30-day volatility known as the CBOE VIX rose a fourth consecutive session, adding to its recent string of two-month highs. The so-called “fear index” reached a session high of 17.49 and would later pare gains to settle at 15.95. VIX typically rises when stocks fall.

Globally, the picture was mixed on Tuesday. Asian stocks extended their selloff while European markets earned modest reprieve.

Rising Interest Rates

Rising bond yields have exerted downward pressure on equity prices, as investors continue to price in a fourth interest rate hike in December by the Federal Reserve. The yield on the benchmark 10-year U.S. Treasury note reached a high of 3.26% on Tuesday but has since fallen back to 3.20%.

Analysts believe rising bond yields could cost the U.S. stock market billions in capitalization. According to Robert Albertson, chief strategist at Sandler O’Neill, rising yields could shave 8% off share prices. Such a correction would put markets well below last month’s peak levels.

The Federal Reserve is expected to continue raising the federal funds rate until it hits 3.4%, according to last month’s FOMC projection materials. The benchmark rate, which affects inter-bank lending, is currently pegged at 2% to 2.25%.

Crypto Markets Search for Direction

Tuesday marked yet another tepid trading session for cryptocurrencies, as bitcoin and the major altcoins fluctuated within a narrow range. Bitcoin’s volatility has been especially tame, with prices fluctuating a mere $77 on Bitfinex. The leading digital currency was trading around $6,660 at last check.

The total value of all cryptocurrencies reached a high near $222 billion overnight and later dipped below $220 billion, according to CoinMarketCap. Trading volumes were down roughly 12% over the past 24 hours. Total market turnover on Tuesday amounted to just $11 billion.

On the news front, bitcoin miners saw their profitability evaporate in September amid a record surge in hash rate. However, profitability will likely soon return as big mining operations continue to reap low electricity costs in favorable jurisdictions.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi