Market Update: U.S. Stocks Face Massive Selloff as Volatility Hits Six-Month High

The selloff of U.S. stocks deepened Wednesday, with the S&P 500 on track for its longest losing streak in nearly two years as rising bond yields weakened investors’ appetite for risk. Cryptocurrencies traded slightly lower mid-week, though the general trend continued to show stability across the market.

Volatility Returns in a Big Way

All of Wall Street’s major indexes experienced massive losses on Wednesday, as volatility surged to the highest level in six months. The CBOE Volatility Index, also known as the VIX, exceeded its long-term average, surging 44% to 22.96, a session high. Usually, VIX rises when stocks fall.

The large-cap S&P 500 Index plunged 3.3% to 2,785.77, its lowest in three months. All 11 primary sectors contributed to the selloff, with information technology and energy shares leading the declines. A total of nine sectors recorded losses of 1.3% or more.

Plunging tech shares weighed heavily on the Nasdaq Composite Index, which sold off 4.1% to 7,422.05.

The Dow Jones Industrial Average declined 823.90 points, or 3.1%, to close at 25,606.87. Nike Inc. (NKE), Visa (V) and Microsoft Corp (MSFT) were the biggest laggards.

Surging Bond Yields

The yields on short- and long-term government debt have surged in recent weeks, as traders cut ties to U.S. Treasuries at a faster pace. Higher borrowing costs and the accompanying rise in inflation have raised concerns of narrower profit margins, which could put a damper on corporate earnings.

Bond yields continued to rise on Wednesday, with the yield on the benchmark 10-year Treasury note hitting 3.24%. Meanwhile, the two-year Treasury yield hit 2.9065, the highest since June 2008. The 30-year yield also touched its highest since 2014. Yields rise as bond prices fall.

Yields are rising at a time of growing optimism in the domestic economy. Last Friday, the Department of Labor reported a new 49-year low in the unemployment rate, offering convincing signs that the economy has reached full employment. The rise in wage inflation also puts the Federal Reserve on course to raise interest rates in December for the fourth time this year.

Crypto Markets Record Tepid Declines

Digital currencies resumed their narrow range-bound trading on Wednesday, though a general downtrend was observed across most major assets. The combined value of all coins in circulation reached a session low of $215.7 billion, according to CoinMarketCap, before recovering back above $217 billion.

Over the past 24 hours, trade volumes have increased by roughly $1 billion. However, total turnover remains abnormally low across most major exchanges, echoing recent findings from Juniper Research and Diar.

Juniper believes that declining trade volumes are a death knell for the cryptocurrency market.  While the research institute does a fine job explaining the sharp drop in turnover since 2017, it disregards growing institutional demand for digital assets and the influx of new services catering to this market.

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