With the FOMC Minutes coming Wednesday afternoon, stocks and ETFs tumbled overnight and into a third consecutive day session, as investors dumped cryptocurrencies, spurring additional selling in speculative areas of the market.
After dropping 586 points at its low of the day, the Dow Jones Industrial Average rebounded somewhat, to trade off by 0.76%. With all of the major sector bathed in red, the S&P 500 shed 0.9%, while the Nasdaq Composite lost 0.7%.
Major stock ETFs are falling on Wednesday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all broadly lower just before 1:00 PM EST.
The decline commenced with started tech stocks but quickly spread across the market, with fragility seeping into most market sectors, with the exception of a few retailers like Target and Walmart, which reported standout earnings data.
“We’ve been telling our clients that we’re probably entering a period where there’s going to be increased chop going forward,” Matt Orton, Carillon Tower Advisors, told Yahoo! Finance. “We’ve had a pretty extreme rotation from growth into value. We’ve seen fits and starts of rotating back into the growth.”
“Now investors need to digest what could potentially be happening with inflation,” he added. “But what we like to remind folks is that as we move sideways, any sort of meaningful downside you see should be used opportunistically, because earnings have been strong, guidance from companies has been incredibly strong going forward. The economy is starting to accelerate as we reopen. So there’s a lot of reasons to continue owning equities, and it’s all about having a game plan.”
Cryptocurrencies, including Bitcoin, fell precipitously as investors fled the market. The notorious crypto tumbled 30% at its low of the session to just above $30,000, according to Coin Metrics, and has been sliced in half since notching an all-time high above $64,000 in mid-April. It is rumored that China’s warning to financial institutions not to conduct crypto-related business may have contributed to the rapid decline.
Bitcoin wasn’t the only cryptocurrency affected on Wednesday. Ether, the digital currency that powers the Ethereum blockchain, lost more than 20% at $2,699, according to Coin Metrics, while Dogecoin also lost over 18%.
Stocks invested in the crypto market also lost market share Wednesday. Tesla, a major holder and proponent of Bitcoin, shed 4%. MicroStrategy, which also had significant Bitcoin holdings for its corporate treasury, tumbled 10%. Meanwhile, Coinbase plummeted almost 10%.
“There is no question that bitcoin has been the poster child for rampant market speculation and risk appetite,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Thus, it should be absolutely monitored in gauging the pulse of risk taking, and now risk aversion.”
“This was bound to happen at some point in ’21 and a somewhat of a reset in crypto-pricing is likely more healthy vs negative for the broader equity markets over time,” Jordan Klein, an analyst at Barclays, said in a note.
Meanwhile, the Federal Reserve releases the minutes from its April meeting later Wednesday afternoon, which could offer some guidance on inflation, a very hot topic lately. While the Fed retained its loose monetary policies last month, it acknowledged that inflation could climb this year, noting that such price pressures will likely be ephemeral.
“The major question for markets right now is whether the Fed is right and this increase in inflation is just temporary, because if inflation is not temporary, it could unleash a very painful period for virtually all investors,” Tom Essaye, founder of Sevens Report, said in a note.
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