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 (NYSE:SPY) was 1.3% lower to $450, the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) fell 0.7% to $354 and the Invesco QQQ Trust (NASDAQ:QQQ) was 2.4% lower to $373, according to Benzinga Pro data.

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

Defensive sectors surged with the Health Care Select Sector SPDR Fund (NYSE:XLV), Utilities Select Sector SPDR Fund (NYSE:XLU) and the Consumer Staples Select Sector SPDR Fund (NYSE: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. (NASDAQ:NVDA) fell 6.3%, on track for the worst day of 2023 amid a broader sell off in semiconductor stocks.
• Advanced Micro Devices, Inc. (NASDAQ:AMD) lost 8% despite beating both earnings and revenue expectations last quarter.
• Tesla, Inc. (NASDAQ:TSLA) tumbled 3.7% marking the worst performance among S&P 500’s heavyweights. Other EV stocks, like Lucid Group Inc. (NASDAQ:LCID) and Rivian Automotive, Inc. (NASDAQ:RIVN), tumbled 6.7% and 7%, respectively.
• Vertiv Holdings, LLC (NYSE:VRT) rocketed nearly 25% in response to its strong quarterly results.
• SolarEdge Technologies Inc. (NASDAQ: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. (NASDAQ:CAKE),DoorDash, Inc. (NYSE:DASH), Etsy, Inc. (NASDAQ:ETSY), EVgo, Inc. (NASDAQ:EVGO),Fastly, Inc. (NYSE:FSLY), Occidental Petroleum Corp. (NYSE:OXY), PayPal, Inc. (NASDAQ:PYPL), Qorvo, Inc. (NASDAQ:QRVO), Qualcomm, Inc. (NASDAQ:QCOM) and Zillow Group, Inc. (NASDAQ: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 (NYSE: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 (NYSE: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 (NYSE:UUP), up 0.6%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust (NYSE:FXE), was 0.6% lower to 1.0947.

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

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

Staff writer Piero Cingari updated this report midday Friday. 

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