Stalled Stock Rally Hits Fringes First as Speculative Bets Cool

Cathie Wood’s flagship ETF, Bitcoin, meme stocks, profitless tech firms. The risk assets that powered this quarter’s $7 trillion rally all took a pounding Monday.

The beat-down was part of a concerted stock and bond rout that saw the S&P 500 Index sink more than 2% to clinch its worst two-day rout since mid-June. The 10-year Treasury selloff pushed yields past 3% for the first time in a month. Volatility spiked higher, with Cboe’s VIX measure pushing toward 24, a level not seen in three weeks.

The proximate cause was a chorus of hawkish Federal Reserve officials days before Chair Jerome Powell is widely expected to reiterate the central bank’s intention to throttle the economy until inflation is under control. As analysts start advising investors to favor cash, the pullback in risk assets may cool concern that rallying stocks would prompt the Fed to be even more aggressive in its campaign.

“We had a risk-on, momentum-driven market from the middle of June to the end of July, and speculative assets do well in those types of environments,” said David Spika, president and chief investment officer of GuideStone Capital Management. “It doesn’t mean that there’s legitimate value there -- it just means that money was chasing momentum.”