Stocks were headed for their worst day since early September on Wednesday as investors finally caved to rising Treasury yields and jitters surrounding the upcoming U.S. election.
It seems a selloff that started earlier this week is picking up speed, and that shouldn’t come as a surprise.
After all, the Cboe Volatility Index, better known as the VIX or the market’s “fear gauge,” has been flashing red since the start of the month. Meanwhile, rising Treasury yields have helped to boost a bond-market uncertainty gauge known as the ICE BofA Merrill Lynch MOVE Index. An elevated MOVE also tends to weigh on stocks.
So far, rising yields have received most of the blame for causing the latest stock-market wobbles. But they’re certainly not the only contributing factor.
According to George Cipolloni, a portfolio manager at Penn Mutual Asset Management, stocks’ march further into record territory had left positioning stretched and investor sentiment on the verge of complacency.
That’s especially troubling ahead of earnings season, Cipolloni said. When stocks are at record highs, the bar to deliver results that truly impress can be insurmountably high.
Outside of earnings, investors have had to contend with a drumbeat of negative news lately, including the E. coli outbreak that has rattled shares of McDonald’s Corp., and an analyst report warning of signs of soft iPhone demand, which was weighing on Apple Inc. shares on Wednesday.
“The market was priced pretty good here, and it didn’t want any earnings disappointments,” Cipolloni said. “But we’re going to get them, and we’ve gotten a few already.”
