Tech Sell-Off, Fed Meeting Expectations Drive Stock Volatility

Stocks Suffer Amidst Volatility Swings

The stock market concluded a week of heightened volatility with declines, primarily driven by the sell-off in the tech sector. Market fluctuations were further amplified by the expiration of options contracts, known as triple witching.

This event injected uncertainty among traders, given the substantial $5.3 trillion worth of contracts set to expire, making it challenging to predict market direction, as analysts warned.

Federal Reserve Anticipation and Market Response

Anticipation surrounding the Federal Reserve’s policy meeting also influenced market sentiment. Debates revolved around the extent of easing officials would signal for 2024 amidst inflation concerns.

Both the S&P 500 and Nasdaq 100 witnessed declines, with Adobe Inc. reporting a bleak sales outlook, although Nvidia Corp. experienced gains in anticipation of its AI conference.

Bond Market Turbulence Amid Economic Indicators

Meanwhile, treasury 10-year bonds experienced their worst week of the year. Economic indicators revealed unexpected slowdowns in the U.S. economy, while inflation remained a concern.

Speculation and Adjustments in Rate Cut Expectations

Speculation regarding the Fed’s forthcoming actions intensified, prompting traders to adjust their bets on the timing of potential rate cuts.

Economists revised their forecasts, now expecting a total of 75 basis points in rate cuts for 2024, down from the previously anticipated 125 basis points.

Weekly Market Performance

For the week, the S&P slipped by -0.1%, the Dow Jones saw a marginal loss of less than -0.1%, and the tech-heavy Nasdaq fell by -0.7%.

Here are the closing levels on Friday, March 15th, 2024: 

Index Last Change %Change
DOW JONES 38,714.77 -190.89 -0.49%
S&P 500 5,117.09 -33.39 -0.65%
NASDAQ 15,973.17 -155.36 -0.96%
U.S. 10Y 4.306%
VIX 14.41 +0.01 0.07%

Fund Flows and Investor Sentiment

According to strategist Michael Hartnett, U.S. equity funds received $56 billion in the week through March 13th, as cited by EPFR Global.

Notably, technology stocks witnessed the largest inflow among sectors, amounting to $6.8 billion, rebounding from a previous record outflow.

Market Outlook: The Fed Meeting and Volatility Ahead

This suggests, as mentioned earlier, that the market is not overly concerned about the timing of rate cuts.

As long as the next move is a cut rather than a hike, the market will continue to feed off the fact that the economy is still robust.

While some indicators hint at a potential slowdown, as long as it remains manageable, bullish sentiments are likely to prevail.

Attention now shifts to the upcoming Fed meeting, with a keen focus on Powell’s statements and the dot plot.

Given recent inflation numbers surpassing expectations, Powell may hint at the need for additional time before considering rate cuts. Investors should brace for heightened volatility in the days ahead.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years. 

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