Seven-Day VIX Swoon Reaches Chaotic End: What Traders Are Saying

(Bloomberg) -- A two-week stretch of building bliss in the stock market hit a wall Thursday, with measures of volatility surging and traders reassessing their reaction to the Federal Reserve’s promise to hold interest rates near zero for the next three years.

The S&P 500 dropped 1.5% for its worst drop in three weeks and the Nasdaq 100 fell 3.1%, erasing its gain for the year. The moves came as bond yields rose, oil prices plunged on concern about the impact of European lockdowns on demand, and traders braced for the simultaneous expiration of futures and options prices on Friday.

Here’s what traders are saying:

Larry Weiss, head of equity trading at Instinet LLC in New York:

It’s a bit of everything, rotation continues out of the crowded tech sector and small caps giving up some recent gains. Ahead of major index rebalance activity tomorrow, volumes are a bit light, exacerbating the moves. Oil is a factor, and inflation fears -- despite the Fed Chair’s calls for rate stability through 2023 -- remain a concern.

Adam Phillips, director of portfolio strategy at EP Wealth Advisors:

This appears to be a delayed response to yesterday’s FOMC meeting. Jay Powell has made it clear that investors are on their own for now when it comes to higher yields, so even if bonds appear oversold, yields may still have further to go. That being said, the pressure on the Fed will only grow as economic data strengthens in the months ahead.

Chris Grisanti, chief equity strategist at MAI Capital Management:

The market is voting right now that we are out of tech and into cyclical, energy and financials.The viciousness and the rapidity of it surprises me but the direction of it doesn’t. It really did seem to grow on itself today. Bonds yields just kind of leaped. Inflation is spooking the market. Companies that would do well with higher rates are clearly out-performing. Powell is saying, take me at face value, we’re going to keep rates low -- that’s terrific for economic growth but it scares the bond vigilantes that there will be too much and it will turn into inflation.

Mike Bailey, director of research at FBB Capital Partners:

It’s as simple as yields up, growth bad. We’re seeing a pattern where an uncomfortable spike in the 10-year Treasury reminds equity investors that their tech stocks are trading well above average, with cyclicals looking more attractive. This spurt in Treasury yields will settle down and equity investors will come back to tech and growth, but it may take a few trading days.

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