VIX Spikes As Interest Rates Fears Increase

Shawn Cruz, Head Trading Strategist, TD Ameritrade

(Monday Market Close) Interest rate fears that crept in last week moved stocks Monday to their worst day since June with the Cboe Market Volatility Index (VIX) spiking more than 15% to settle back near 24.

Stocks traded lower across all major indexes led by the Nasdaq ($COMP) that fell 2.55%. The S&P 500® index (SPX) tumbled 2.14% and the Dow Jones Industrial Average ($DJI) dropped 1.91%.

Attention now grows even stronger on the Federal Reserve’s annual Jackson Hole Economic Symposium this week where Fed chair Jerome Powell is scheduled to speak on Friday. The speech gives him a chance to reset interest rate expectations that appear to have shifted several times in the past few weeks. 

With so many concerns around interest rates, the bond market was busy on Monday with the 10-year Treasury yield (TNX) rising five basis points to 3.04%. The 2-year Treasury yield was up nine basis points to 3.33%. The rising yields strengthened the dollar taking the U.S. Dollar Index ($DXY) 0.72% higher on the day and creating a new 52-week-high closing price.

The strong dollar has been a bane for mega-cap investors all year and was a headache once again on Monday. The CRSP U.S. Mega-cap Index plunged 2.16% as investors worried that exchange rates would continue to be a problem for multinational company earnings.

The rising rates caused investors to revalue stocks once more which hit growth stocks hard. The S&P Pure Growth Index dropped 2.19%. However, value stocks weren’t immune to revaluations as the S&P Pure Value Index also slid 1.92%.

All market sectors were lower on the day led by consumer discretionary and technology. Energy saw the lowest losses thanks to strength in the oil prices. But NYSE decliners outpaced advancers about 5-to-1. 

CHART OF THE DAY: GAME STOPPAGE. The Cboe Market Volatility Index (VIX—left) tested its June lows on Monday as investor fears around the rising interest rate environment increased. The S&P 500® index (SPX—right) traded below its June peak. The bulls and the bears are likely to battle over these lines throughout the week as investors hope to gain clarification from Federal Reserve chair Jerome Powell on Friday. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Results From Retailers

Earnings from retailers are expected to continue this week. So far, the results have been mostly negative. According to Refinitiv, the blended earnings growth rate of the retail sector in the second quarter is -6.3%. On the top end of the spectrum is the Hotels, Restaurants, and Leisure group with an astounding 411.5%, It was followed by Household Durables at 36.5%, Distributors with 13.2%, and Leisure Products coming in at 12.3%.

However, the worst growth rates within the broad retail group includes Internet & Catalog Retail (-115.6%), Multiline Retail (-51.7%), Personal Products (-22.9%) and Textiles, Apparel & Luxury Goods (-6.9%).

The report reflects a consumer base ready to get off their computers, out of the house and on a vacation after two years of pandemic restrictions. However, internet sales are also picking up again. Target TGT expected to see digital sales grow 5% in Q2 but reported a 9% increase. Lowe’s LOW beat its 0.9% digital estimate with a 7.0% increase, and Home Depot HD beat its 1.3% projection with a 12.0% gain in online sales. Walmart WMT fell short of its 18.3% estimate but still experienced 12% growth online.

Notable Calendar Items

Aug 24: Durable goods orders, Pending home sales, and earnings from Nvidia (NVDA), Salesforce.com CRM, Snowflake SNOW, and Autodesk ADSK

Aug 25: Gross domestic product (GDP) and earnings from Dollar General DG, Workday WDAY, Dollar Tree DLTR, Ulta Beauty ULTA, Burlington Stores BURL, and Gap GPS

Aug 26: Fed Chairman Jerome Powell speaks at Jackson Hole conference, PCE price index, Michigan Consumer Sentiment, Personal Income, and earnings from Marvell Technology MRVL and Dell DELL

Aug. 29: Dallas Federal Reserve Manufacturing Index

Aug 30: CB Consumer Confidence, JOLTs Job Openings and earnings from Crowdstrike CRWD, Hewlett Packard HPE, Chewy CHWY, Best Buy BBY, and Big Lots BIG

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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