Yield Curve Disinversion and Nvidia's Continued Fall Stir Market Concerns

Continued Market Decline

Following the largest S&P drop since the August 5 rout, the market experienced continued selling. The interest to buy the dip quickly faded around the time Europe closed for trading, leading to more gradual selling. This pushed the S&P down by 0.3%, a significant decrease from yesterday's 2% dump, and returned it to its position after last month's stronger than expected retail sales report.

Mounting Fears of a Hard Landing

Underlying the market's performance are increasing fears of a hard landing. These fears were fueled by yesterday's catastrophic manufacturing surveys (both ISM and PMI), and were further exacerbated by today's alarming JOLTS report. This report revealed a massive, 4-sigma miss in job openings, which not only fell below the lowest estimate but also dropped to the lowest level since January 2021. This leaves Friday's payrolls report in a precarious position.

Market Response to Bad News

Given the current market regime where bad data results in bad news, the rising hard-landing fears led to a second day of uniform selling. Only Utilities and Consumer Staples managed to eke out modest gains, while everything else was deep in the red. The continuous stream of bad news has also increased the probability of a 50bps rate cut in the September FOMC from 35% to as high as 50% just after the JOLTS shock, before settling back to 44%. Therefore, ahead of Friday's payroll, it's effectively a coin toss whether the Fed will cut rates by 25bps or 50bps in two weeks.

Impact on VIX and NVDA

The hard-landing panic negatively impacted both the VIX and the volatility of the VIX (VVIX), with both indexes reversing an early morning drop and resuming their ascent for a second day. Meanwhile, NVDA's record plunge continued, with the stock losing another 2%, pushing it below both 100DMA and resulting in a two-day drop of 11.4%. This equates to a staggering $333 billion loss in market cap in two days.

Bond and Oil Market Reactions

As traders sold stocks, money flowed into bonds, with the 10Y yield sliding for a second day to 3.75%, the lowest level this year and since last July. However, 2Y yields crumbled, leading to the first brief 2s10s yield curve disinversion since July 2022. Oil also reached 2024 lows, dropping another 2% to the lowest level since last December, despite a denial of last week's report that OPEC+ would boost production.

Gold Market Awaits Next Steps

With the next step by either the US or China likely to be more stimulus, whether monetary or fiscal, gold continues to await the next steps. After tumbling yesterday, it recovered much of its losses and is trading just shy of an all-time high.

Bottom Line

The market's continued decline, the first yield curve disinversion in two years, and Nvidia's ongoing plunge are all contributing to mounting fears of a hard landing. These developments are causing significant shifts in various markets, from stocks and bonds to oil and gold. As we look towards the future, it's crucial to consider the potential impacts of these shifts. What are your thoughts on these market developments? Share your insights with your friends and consider signing up for the Daily Briefing, which is delivered every day at 6pm.