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Here’s what drove the market meltdown

Weak U.S. data, Europe, Ebola fears play roles in selloff

 Interconnected worries over deflation, a potential rerun of the eurozone debt crisis and some surprisingly rotten U.S. economic data shocked investors on Wednesday, triggering a whipsaw session that saw stocks plunging only to trim losses before the final bell.

Here’s a rundown of the turmoil across financial markets:

Stocks

It was panic mode in the early going and again in the afternoon. The DowDJIA, -1.06% dropped by around 460 points and were on track for the biggest one-day percentage drop in three years before a late rebound. In the end, the index finished down 173.45 points, or 1.1%, at 16,141.74.The S&P 500SPX, -0.81% temporarily erased its gain for the year but also trimmed losses by the end of the session. The small-cap Russell 2000 RUT, +1.02% , which has been under heavy pressure this month, led the late rebound, finishing the day with a 1% gain.

The S&P 500 recorded a decline of more than 9% from its intraday peak reached on Sept. 19 to its trough on Wednesday.

While stock prices climbed the wall of worry for the first nine months of the year, strategists were at a loss to point to a single catalyst for the selloff. It appears a confluence of bad news spooked investors this time.

A trio of disappointing U.S. economic reports — retail sales, the Empire State Index and the producer price index — ahead of the opening bell, problems in Europe and mounting concerns over the threat posed by Ebola were all been cited as reasons for the drop. 

Treasurys

10yryld_10152014

The 10-year Treasury note yield 10_YEAR, -2.66% which serves as a benchmark for all sorts of borrowing costs from mortgages to students loans took a sharp tumble on Wednesday as investors sought the safety of bonds. At one point Wednesday morning, the yield, which moves in the opposite direction as prices, dropped as much as a third of a percentage point, with the yield pushing below 2% for the first time since June 2013. It rebounded higher to trade at 2.148%, according to Tradeweb

Nonetheless, the 10-year yield is down nearly a full percentage point since the end of last year, defying the expectations of most investors, who were bracing for rising rates. The most recent drop comes as investors found particular reason to fear global economic weakness. Signs of lagging inflation in Europe and slowing growth in Asia combined with weak U.S. numbers to suggest that a slow-growth global economy could delay plans for the Federal Reserve to hike its key lending rates.

Europe

Before the downbeat U.S. economic data, U.S. stock-index futures had already caught a chill from Europe. The pan-European Stoxx 600 index entered correction mode with a drop of 3.3% on Wednesday, bringing it down 11% from its 2014 closing high set in June. A correction is considered a drop of at least 10% from a recent high.

Strains are re-emerging in the eurozone on growing fears the region is stumbling back toward recession and that the underlying causes of the debt crisis remain unresolved. Greek bond yields on Tuesday edged back above 7% and extended the rise Wednesday, while a flight-to-safety has sent the 10-year German bund yield DE10YT, +2.22% to a record low below 0.8%. 

“Right now, there is no sovereign crisis, but the fact that Greek yields have crossed the 7% threshold is a warning sign that all is not well,” said Kathleen Brooks, London-based research director at Forex.com in a note.

VIX

vix

Investors are scared. The CBOE Volatility Index, or VIX VIX, +15.18% which measures implied volatility on the S&P 500 jumped to as high as 31.06, the highest level since December 2011 during the worst of the eurozone debt crisis. The index traded ended the day at 26.25, a rise of 15.2% on the day.

The index has seen a huge jump when measured versus the persistently and extraordinarily low levels that investors grew accustomed to over the past two years, but it is only slightly above historical average of 20. As the Federal Reserve withdraws its liquidity support, these levels may again become the norm. 

Gold

It has been a seesaw autumn for gold bugs. The yellow metal tumbled sharply in September, as investors looked for the Federal Reserve to begin hiking interest rates next year.The dollar’s fall on Wednesday, coupled with investors looking for a haven, saw gold GCZ4, -0.39% turn higher, adding to a gain that’s lifted the precious metal around 2.5% so far this month.

http://www.marketwatch.com/