Market Update: Volatility Makes a Stunning Return as Trade Risks Sink Global Stocks

Wall Street and international stocks declined sharply Monday amid rumors the Trump administration was planning to widen its trade war with China.

Volatility Spikes

All of Wall Street’s major indexes fell hard in the first session of the week. The large-cap S&P 500 Index declined 1.7% to 2,717.07, with nine of 11 primary sectors finishing lower. Shares of information technology fell the hardest, declining 2.3% as a sector. Materals, energy and discretionary shares each fell more than 1.5%.

Dow industrials plunged more than 400 points in intraday trading before paring losses in the final hour. The blue-chip index closed down 328.09 points, or 1.3%, at 24,252.80.

The technology-heavy Nasdaq Composite Index posted the biggest losses percentage-wise, falling 2.1% to close at 7,532.01.

The stock-market selloff triggered a sharp rise in implied volatility, with the CBOE VIX hitting its highest level in three-and-a-half months. Wall Street’s preferred measure of investor anxiety reached a session high of 19.61, which is not far from the historic average. The index would later settle at 17.33, having gained more than 25%.

Implied volatility tracks inversely with the S&P 500 Index roughly three-quarters of the time. Volatility has been ebbing back into the market since early February as investors began to anticipate faster interest rate hikes by the Federal Reserve.

Global equity prices also fell hard on Monday. All of Europe’s benchmark indexes finished lower, with Euro Stoxx 50 Pr shedding 2.1% to 3,369.21.

In Asia, Japan’s benchmark Nikkei 225 fell 0.8% to 22,338.15. Mainland China’s CSI 300 Index declined 1.3% to 3,560.48.

Trade War Escalates

Underpinning the latest tumult on Wall Street was a report that President Donald Trump is planning to restrict Chinese access to U.S. technology through a comprehensive ban on investments and exports.

The Wall Street Journal reported Sunday that Washington seeks to bar Chinese companies from investing in U.S. technology. The report also said the White House wants to block additional technology exports to the world’s second-largest economy. According to WSJ, the new measures will be announced by the end of the week.

However, the report was later dismissed by Treasury Secretary Steven Mnuchin, who issued the following tweet:

“On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.”

President Trump earlier this month slapped a 25% levy on up to $50 billion worth of Chinese imports and threatened more tariffs if China retaliates.

Cryptocurrencies Come Off Year-to-Date Lows

The cryptocurrency market staged a modest relief rally Monday, as bitcoin successfully defended a key inflection point and the major altcoins stabilized over a 24-hour period.

Cryptocurrencies as a whole saw their market capitalization rise to $259.1 billion after hitting a low of around $235 billion over the weekend. Bitcoin rose a modest 1% compared with Sunday, with prices hovering around $6,262. The largest cryptocurrency by market cap fell below $5,800 Sunday afternoon, reaching its lowest level so far this year.

Ethereum, Ripple XRP and bitcoin cash all recorded modest gains compared with 24 hours earlier.

Trading volumes have picked up in recent days. Daily turnover on Monday approached $18 billion for the first time in two weeks, with bitcoin’s share of total transactions falling below 30%.

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