Investors Rattled by Fed Decisions, Fears of Government Shutdown as VIX Surges Above 30

The major U.S. stock indexes plunged for a second day as investors continued to try to make sense out of the U.S. Federal Reserve’s decision to raise its benchmark interest rate and continue to let its massive balance sheet shrink at the current pace. Investors are also being rattled by fears of a government shutdown.

In the cash market, the benchmark S&P 500 Index settled at 2467.42, down 39.54 or -1.58%. The blue chip Dow Jones Industrial Average finished at 22859.60, down 464.06, down 1.99%. The technology-driven NASDAQ Composite closed at 6528.41, down 108.42 or -1.63%.

Selling in the S&P 500 Index was dominated by underperforming technology stocks. CNBC reports that companies in the S&P 500 have lost a total of $2.39 trillion in market cap in December. The Dow Jones Industrial Average has lost more than 800 points since the Fed decision on Wednesday and is down over 1700 points the past 5 sessions. The NASDAQ Composite briefly dipped into bear market territory on Thursday and is now down nearly 20 percent from its recent high.

More importantly, which could be a sign of further weakness to come, the CBOE Volatility Index, a widely accepted measure of risk, rose above 30.

More Market Factoids

The S&P 500 and the Dow, are both in correction territory (greater than 10% decline from recent top), and are also in a position to post their worst December performance since the Great Depression in 1931. Additionally, the Dow closed at its lowest level since October 2017, while the S&P 500 ended the session at its lowest since September 2017. The NASDAQ Composite, while flirting with bear market territory earlier in the session, also finished at its lowest since October 2017.

Government Shutdown Fears

Equities hit their low for the day after U.S. House of Representatives Speaker Paul Ryan announced that President Donald Trump would not sign a temporary government funding resolution.

On Wednesday, the U.S. Senate approved funds for several federal agencies to keep them operating through February 9 without the $5 billion to build a wall on the U.S.-Mexico border that President Trump had demanded.

Other Bearish Factors

The Trump administration and more than a dozen international allies condemned Beijing for what the coalition views as continued efforts by the Chinese to steal other countries’ trade secrets. This news helped raise concerns over whether there would be a resolution to the U.S.-China trade dispute before the March 1, 2019 deadline.

Furthermore, another drop in oil prices drove down energy stocks. The energy sector has been a major drag on the S&P 500 Index, with oil prices trading near a 17-month low on fears of a global economic slowdown.