“It all has to do with interest rates going up. Since the financial crisis we have had an accommodative monetary policy that has injected a lot of liquidity into the markets and zapped volatility,” Massud Ghaussy, senior analyst at Nasdaq, told Reuters. “Now that’s being reversed, so all these overpriced valuations are coming down and we’re seeing the markets drop as interest rates are being normalized … and high data names like tech sector will take the greatest hit.”
The rising yields on later-dated U.S. Treasuries is putting more pressure on u.S. stocks, which are trading near record highs, fueling anxiety over valuations, especially as we enter earnings season.
“We’re going to be seeing more volatility,” Tracie McMillion, head of Global Asset Allocation at Wells Fargo Investment Institute, told the Wall Street Journal. “The market is trying to assess: How do you discount stock prices when interest rates are going up?”
For more information on the CBOE Volatility Index, visit our VIX category.