U.S. equities and stock exchange traded funds retreated Thursday with the sell-off in technology shares deepening, but U.S. banks managed to skirt the blood letting.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEARCA:SPY), iShares Core S&P 500 ETF (NYSEARCA:IVV) and Vanguard 500 Index (NYSEARCA:VOO), were 1.2% lower Thursday and on track to post their largest one-day drop in a month.
Technology company shares in the S&P 500 were among the worst performers Thursday, declining 2.1% and moving toward their largest monthly loss in a year.
On the other hand, the financial sector was looking much rosier as financial companies in the S&P 500 rose 0.4% after the Federal Reserve cleared the top six U.S. banks in the second part of the annual stress test, which signaled the banks to raise dividend payouts and share buybacks.
“Part of the reason why tech is down today is the steam in the recent rotation out of some of big tech winners and into banks,” Michael Scanlon, portfolio manager at Manulife Asset Management, told Reuters. “The catalyst for that rotation today is the really strong stress test results coupled with higher treasury rates this morning and a positive GDP revision, leading investors to move into financial which has underperformed this year.”
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With markets reeling, the CBOE Volatility Index surged 35.6% to 13.6 mid-Thursday, hovering around its highest level since mid-May. The VIX has been trading around its lowest level in decades and any sudden pullbacks or increased risk-off sentiment would trigger a spike in the fear gauge.
“Everyone talks about the VIX, but there are undercurrents of significant volatility in the market,” Joe Sowin, head of global equity trading at Highland Capital Management LP, told Bloomberg. “There’s a lot more volatility in tech this month and that’s in part due to stretched P/Es, positioning and breadth that isn’t good.”
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