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Market volatility: A rough day in the markets
Koen Hoorelbeke
Options Strategist
Résumé: The markets faced a significant selloff due to disappointing earnings from Tesla and Alphabet, causing major indices to drop and volatility to spike. Heightened uncertainty is reflected in the increased volatility measures, indicating a cautious market outlook ahead.
Market volatility: A rough day in the markets
What happened?
Today, the markets experienced a significant selloff driven by disappointing earnings reports from major tech companies Tesla and Alphabet (Google). Both companies fell short of investor expectations, leading to a broad market decline:
- Tesla (TSLA): Despite high sales volumes, Tesla's earnings showed squeezed profit margins, raising concerns about future profitability.
- Alphabet (GOOGL): Faced challenges in its advertising revenue, missing analyst expectations, which contributed to the selloff in tech stocks.
The news caused a ripple effect across major indices, with technology stocks being particularly hard hit.
Current situation
As of the market close, the data reflects substantial declines across key indices and a spike in volatility measures:
- S&P 500 (SPX): Down 2.31% (-128.61), closing at 5,427.13. This marks the biggest one-day down move since September 2022.
- Nasdaq 100 (NDX): Down 3.65% (-721.95), closing at 19,032.35
- Russell 2000 (RUT): Down 2.13% (-47.89), closing at 2,195.37
Volatility indicators show heightened investor anxiety:
- VIX: Up 22.55% (+3.32), now at 18.04. The last time VIX was at this level was on April 22nd.
- VVIX: Up 19.90% (+17.61), now at 106.12
- SKEW: Down 3.10% (-4.38), now at 137.00
Futures markets also reflect this negative sentiment:
- VIX futures (VX): Up 14.33% (+2.140), now at 17.070
- S&P 500 futures (ES): Down 2.13% (-119.00), now at 5,480.25
- Nasdaq 100 futures (NQ): Down 3.41% (-680.25), now at 19,244.75
- Russell 2000 futures (RTY): Down 2.04% (-46.2), now at 2,215.8
What's next?
Looking ahead, several factors could influence market direction:
Earnings season continuation:
- All eyes will be on next week's earnings releases with big names like Microsoft and Meta, among many other tech-related stocks. Any deviations from expectations could cause more market volatility.
- All eyes will be on next week's earnings releases with big names like Microsoft and Meta, among many other tech-related stocks. Any deviations from expectations could cause more market volatility.
Economic indicators:
- Upcoming data on GDP growth, employment numbers, the Core PCE Price Index on Friday, and other economic metrics will be crucial. These indicators will provide insight into the broader economic outlook and potential market impact.
- Upcoming data on GDP growth, employment numbers, the Core PCE Price Index on Friday, and other economic metrics will be crucial. These indicators will provide insight into the broader economic outlook and potential market impact.
Federal Reserve actions:
- The Federal Reserve's next meeting is on Wednesday, July 31, 2024. It will be closely monitored for any changes in interest rate policy. Any hints towards future monetary policy adjustments, including a potential surprise interest rate cut, could significantly affect market sentiment.
- The Federal Reserve's next meeting is on Wednesday, July 31, 2024. It will be closely monitored for any changes in interest rate policy. Any hints towards future monetary policy adjustments, including a potential surprise interest rate cut, could significantly affect market sentiment.
Sector rotation:
- Investors might shift their focus towards more defensive sectors if the current volatility persists. This could lead to relative outperformance in sectors like utilities and consumer staples.
- Investors might shift their focus towards more defensive sectors if the current volatility persists. This could lead to relative outperformance in sectors like utilities and consumer staples.
Political events (US elections):
- The upcoming US elections could significantly impact market sentiment, with potential implications for regulatory policies and economic outlook.
Conclusion:
Only time will tell if the market is headed for a deeper correction or if this presents a good entry point for investors. Volatility, measured by the VIX and related indices (VVIX, VIX1D, VIX9D, etc.), clearly shows that uncertainty has risen. This increase in volatility signals that extra caution is warranted. Investors should stay vigilant, keeping a close eye on upcoming earnings reports and economic data to navigate these turbulent times.