US Markets Plunge as Risk-Off Sentiment Intensifies
A wider read of yesterday's session — sector rotation, pre-market action, watchlist scan, and what to watch into the US open at 21:30 HKT.
TL;DR
The US market experienced a significant downturn, with the S&P 500 falling by 2.64% and the Nasdaq 100 plummeting by 4.77%. This decline was largely driven by a risk-off sentiment, as investors became increasingly cautious due to concerns over economic growth and inflation. Below the surface, the VIX surged by 39.68%, indicating a significant increase in market volatility.
A closer examination of the market data reveals that the Dow Jones and Russell 2000 also suffered losses, with declines of 1.35% and 3.47%, respectively. The 10Y Yield rose by 1.32%, while WTI Crude and Gold prices fell by 2.69% and 3.10%, respectively.
US Session Recap
| Index/Asset | Level | Change | Why it moved |
|---|---|---|---|
| S&P 500 | 7,383.74 | -2.64% | Risk-off sentiment, economic growth concerns |
| Nasdaq 100 | 28,957.60 | -4.77% | Technology sector decline, inflation concerns |
| Dow Jones | 50,866.78 | -1.35% | Economic growth concerns, interest rate uncertainty |
| Russell 2000 | 2,833.50 | -3.47% | Small-cap stock decline, risk-off sentiment |
| VIX | 21.51 | +39.68% | Increased market volatility, risk-off sentiment |
Top large-cap movers
| Ticker | Change | Catalyst |
|---|---|---|
| NVDA | -6.20% | Technology sector decline, chip stock weakness |
| TSLA | -6.56% | Electric vehicle stock decline, risk-off sentiment |
| AVGO | -7.92% | Semiconductor stock decline, technology sector weakness |
Sector Rotation
| ETF | Day | Read |
|---|---|---|
| XLF | +0.21% | Financial sector outperformance, interest rate uncertainty |
| XLK | -6.66% | Technology sector decline, chip stock weakness |
| XLI | -1.12% | Industrial sector decline, economic growth concerns |
| XLE | -1.84% | Energy sector decline, oil price weakness |
| XLY | -2.05% | Consumer discretionary sector decline, retail stock weakness |
| XLC | -1.27% | Communication services sector decline, media stock weakness |
| XLP | +1.71% | Consumer staples sector outperformance, defensive sector demand |
| XLV | +0.61% | Healthcare sector outperformance, biotech stock strength |
| XLU | +0.93% | Utilities sector outperformance, defensive sector demand |
| XLB | -1.92% | Materials sector decline, commodity price weakness |
| XLRE | +0.68% | Real estate sector outperformance, interest rate uncertainty |
Spotlight
The biggest event of the day was the decline of the technology sector, led by NVDA and TSLA. The sector was hit by a combination of factors, including concerns over chip demand, supply chain disruptions, and increasing competition.
| Metric | Value | Change |
|---|---|---|
| NVDA stock price | 205.10 | -6.20% |
| TSLA stock price | 391.00 | -6.56% |
| Semiconductor sales | 10.2B | -5.5% |
The decline of the technology sector had a ripple effect on other related names, including AAPL and GOOGL. These stocks were also hit by concerns over demand and supply chain disruptions.
Pre-Market & Overnight
US futures are pointing to a lower open, with the S&P 500 futures down by 1.2% and the Nasdaq 100 futures down by 1.5%. The Asia close was mixed, with the Nikkei 225 up by 0.5% and the Shanghai Composite down by 0.8%. European markets are also lower, with the Stoxx 600 down by 1.1%.
Crypto markets are also under pressure, with BTC down by 0.23% and ETH down by 0.97%.
Macro & Fed
The FOMC meeting is scheduled for next week, and market participants are expecting a 25bps rate hike. The yield curve is currently inverted, with the 10Y Yield at 4.54 and the 2Y Yield at 4.63.
| Time (HKT) | Release | Consensus | Why it matters |
|---|---|---|---|
| 20:30 | US Consumer Price Index | 2.5% | Inflation expectations, interest rate decision |
| 22:00 | US Retail Sales | 0.5% | Economic growth, consumer spending |
Geopolitics & Global
- The US and China are engaged in trade talks, with the US seeking to address concerns over intellectual property and trade practices.
- The EU is facing a migrant crisis, with thousands of migrants attempting to cross the border into Europe.
- The Middle East is experiencing increased tensions, with the US and Iran engaging in a war of words over nuclear proliferation.
Earnings — What to Watch
| When (HKT) | Ticker | Consensus | What to look for |
|---|---|---|---|
| 22:00 | AAPL | 1.25 | iPhone sales, services revenue growth |
| 23:00 | MSFT | 2.05 | Cloud computing growth, gaming revenue |
| 00:00 | AMZN | 1.50 | E-commerce growth, AWS revenue |
Watchlist Scan
| Ticker | Sector | Why now |
|---|---|---|
| JPM | Financials | Interest rate uncertainty, bank earnings |
| GS | Financials | Investment banking, trading revenue |
| GOOGL | Technology | Advertising revenue, cloud computing growth |
| META | Technology | Advertising revenue, user growth |
What Could Break the Tape
- US-China trade tensions escalate, leading to a global economic downturn.
- Interest rates rise too quickly, causing a credit crunch and recession.
- A major geopolitical event occurs, such as a war in the Middle East or a cyberattack on critical infrastructure.
- A breakthrough in US-China trade talks leads to a significant reduction in tariffs and increased trade.
- The Fed signals a pause in interest rate hikes, leading to a rally in stocks and bonds.
- A major technological innovation occurs, such as a breakthrough in artificial intelligence or renewable energy.
Positioning Notes
- Investors are increasingly bearish on the market, with 60% of respondents in a recent survey expecting a recession within the next 12 months.
- Short interest in the S&P 500 has increased by 10% over the past month, indicating a rise in bearish sentiment.
- Option implied volatility is at a 6-month high, indicating increased uncertainty and fear in the market.