Nasdaq Plunges, VIX Spikes As US Credit Downgrade Sparks Rush To Cash: What's Driving Markets Wednesday?

Wednesday is shaping up to become one of the most negative trading sessions of the year, with a sharp spike in the VIX, the market’s fear gauge, rising by 16% as of midday New York trading, the largest daily increase since March 9 when Silicon Valley Bank collapsed.

Wall Street was rattled by Fitch’s downgrade of the U.S. sovereign credit rating by one notch to AA+, aligning with S&P’s assessment.

Better-than-expected ADP employment report data for July failed to prevent a widespread sell-off affecting stocks, bonds, and commodities, with the only exception provided by the dollar’s performance in the foreign exchange market, signaling a growing demand for liquid assets.

Cues From Wednesday's Trading:

Major indices faced a significant tumble, with tech stocks showing the most weakness. The Nasdaq 100 experienced a notable 2.4% decline, on track for its largest daily drop in 2023.

Small caps in the Russell 2000 index fell by 1.8%, while the S&P 500 shed 1.4%. The Dow lost 240 points, down 0.7% for the session.

US Index Performance On Wednesday

Analyst Color:

The downgrade, according to Mark Dowding, chief investment officer at RBC BlueBay Asset Management LLP, is a caution for the continued high issuance of U.S. Treasuries, which might have a rippling impact on global markets and a shift in the yield curve. He also stated that investors have lately begun to accept the Goldilocks story, but warned that pricing for perfection may put investors in danger of a slump.

Wednesday’s Trading In Major US Equity ETFs: In midday trading on Wednesday, the SPDR S&P 500 ETF Trust SPY was 1.3% lower to $450, the SPDR Dow Jones Industrial Average ETF DIA fell 0.7% to $354 and the Invesco QQQ Trust QQQ was 2.4% lower to $373, according to Benzinga Pro data.

Among U.S. equity sectors, the Technology Select Sector SPDR Fund XLK was the laggard, down 2.8%, followed by the Communication Services Select Sector SPDR Fund XLC and the Consumer Discretionary Select Sector SPDR Fund XLY, both 2% lower.

Defensive sectors surged with the Health Care Select Sector SPDR Fund XLV, Utilities Select Sector SPDR Fund XLU and the Consumer Staples Select Sector SPDR Fund XLP, up 0.7%, 0.9% and 0.5%, respectively.

Latest Economic Data:

The ADP released its private employment report for July showing a slowdown in the pace of job gains from 455,000 to 324,000, but still well above the expected 189,000.

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Stocks In Focus:

• Nvidia Corp. NVDA fell 6.3%, on track for the worst day of 2023 amid a broader sell off in semiconductor stocks.
• Advanced Micro Devices, Inc. AMD lost 8% despite beating both earnings and revenue expectations last quarter.
• Tesla, Inc. TSLA tumbled 3.7% marking the worst performance among S&P 500’s heavyweights. Other EV stocks, like Lucid Group Inc. LCID and Rivian Automotive, Inc. RIVN, tumbled 6.7% and 7%, respectively.
• Vertiv Holdings, LLC VRT rocketed nearly 25% in response to its strong quarterly results.
• SolarEdge Technologies Inc. SEDG fell 19% on pace for the largest daily drop since March 2020, as the company missed revenue forecasts.
• Important companies reporting after the close include Cheesecake Factory Inc. CAKE,DoorDash, Inc. DASH, Etsy, Inc. ETSY, EVgo, Inc. EVGO,Fastly, Inc. FSLY, Occidental Petroleum Corp. OXY, PayPal, Inc. PYPL, Qorvo, Inc. QRVO, Qualcomm, Inc. QCOM and Zillow Group, Inc. Z

Commodities, Bonds, Other Global Equity Markets:

Crude oil tumbled 3.4%, with a barrel of WTI-grade crude trading at $79. The United States Oil Fund ETF USO was 2.6% lower to $71.  

Treasury yields steepened, with the 10-year yield up by 6 basis points to 4.09% and the two-year yield flat at 4.89%. The iShares 20+ Year Treasury Bond ETF TLT was 1.1% lower for the day. 

The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.6%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.6% lower to 1.0947.

European equity indexes closed sharply in the red. The SPDR DJ Euro SToxx 50 ETF FEZ fell 2.1%. 

Gold fell 0.7% to $1,936/oz. The SPDR Gold Trust GLD was 0.4% lower to $179. Silver fell 2.4% to $23.72, with the iShares Silver Trust SLV down 2.3% to $21.8. Bitcoin BTC/USD was 1.4% lower to $29,282.

Staff writer Piero Cingari updated this report midday Friday. 

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