Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Stocks Plunged Today (It’s Not About Europe): Intel Corporation (INTC), Microsoft Corporation (MSFT)

Stocks started the day in the black, but that didn’t last and they went on to record their largest daily loss since Nov. 7, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average losing 1.8% and 1.5%, respectively.

Market commentators pointed to the uncertainty of the outcome of national elections in Italy, but that didn’t bother European investors; all the major European stock markets were up today — including Italy’s, where the FTSE MIB gained 0.7%. The spread between the yield on the 10-year Italian government bond and that on its safe-haven German counterpart did widen to 2.93 percentage points, but only by 5 basis points (a basis point is equal to one hundredth of a percentage point), which hardly indicates a “risk off ” stampede.

Intel Corporation (NASDAQ:INTC)

It appears, to paraphrase Mark Twain, that the report of the death of stock market volatility was an exaggeration. Consistent with today’s sharp loss, the IPATH SP500 VIX ST FUT CAD HDG ETN (TSE:VIX), Wall Street’s fear gauge, shot up 34% to close at just below 19. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.) This is the VIX’s highest closing value since Dec. 28 — as the fear and uncertainty concerning the fiscal cliff was reaching its climax.

As a result, “fast money” types jumped on the volatility train today, making the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) — a toxic product that is the financial equivalent of keno — the third most highly traded security across U.S. equity markets today. The daily dollar volume was roughly twice or more that of megacaps such as Microsoft Corporation (NASDAQ:MSFT), General Electric Company (NYSE:GE), and Intel Corporation (NASDAQ:INTC)! Another VIX-related product, the ProShares Ultra VIX Short-Term Futures ETF was also in the top 10 volume leaders.

Of course, when I wrote volatility’s funeral oration, I knew that its demise could only be temporary and that its reanimation was only a matter of time. Bear in mind that even at 18.99, the VIX remains below its average since its inception in January 1990, which is 20.41, and this is a highly mean-reverting series. In this environment, investors need to stay resolutely focused on underlying fundamentals, valuations, and long-term results. Central banks’ experimental efforts to suppress volatility are something akin to Dr. Frankenstein’s attempt to create a new Prometheus — as the good doctor found out, they have the potential to create unpredictable, monstrous outcomes.

The article Why Stocks Plunged Today (It’s Not About Europe) originally appeared on and is written by Alex Dumortier, CFA.

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Intel and owns shares of General Electric Company, Intel, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!