Wall Street Daily (March 21): US stocks fell again on Friday, with oil prices rebounding and volatility surging, leading to a significant deterioration in market sentiment; tech stocks and small caps under pressure, while gold continued its sharp decline

Summary: US stocks saw another notable decline on Friday, with the S&P 500 down 1.51%, Nasdaq down 2.01%, Dow Jones down 0.96%, and Russell 2000 down 2.26%; sentiment deteriorated significantly once again. The VIX surged to 26.78, indicating a rapid increase in demand for protective positions, and the market's tolerance for sudden shocks declined again. The core pressure on the day remained focused on the upward revision of oil prices and interest rate expectations: crude oil rose 3.70%, inflation and supply concerns heated up again, further compressing market expectations for a Fed rate cut this year, leading to higher bond yields, with high-valuation assets bearing the brunt. In terms of sectors, not only did tech continue to weaken, but small caps and Chinese stocks also came under pressure, showing that risk contraction had spread from large-cap stocks to a broader range. Regarding major asset classes, the US dollar index rose 0.31%, gold fell 3.43%, crude oil rose 3.70%, and Bitcoin gained 0.83%. Overall, Friday was not just a localized pullback but more like the market returning to a more typical defensive trading pattern.

I. Major Events

1. Oil prices surged again, prompting the market to lower expectations for a rate cut this year

The most crucial change on Friday was still the renewed rise in oil prices. Crude oil surged 3.70% in a single day, reigniting inflation and supply concerns that had just eased the previous day, causing the market to quickly lower expectations for a Fed rate cut this year. With interest rate expectations being readjusted higher, valuation-sensitive tech stocks and small caps were among the first to feel the pressure, leading to a return to defensive trading in US stocks.

2. Quarterly options expiration led to position adjustments amplifying market volatility

Friday coincided with the quarterly options expiration for March. Such periods are inherently prone to triggering passive hedging, end-of-day rebalancing, and concentrated adjustments of existing positions. Against the backdrop of rising oil prices and tighter interest rate expectations, this 'expiration effect' acted as an amplifier, pushing an already weak market into a broader pullback. The VIX surged 11.31% in a single day, also confirming the characteristic of concentrated volatility amplification.

3. The situation in the Middle East continues to escalate, with the US using policy tools to suppress oil prices

In addition to increased volatility at the trading level, Friday saw more upstream policy and geopolitical changes. The situation in the Middle East continued to escalate, with the US sending more warships and marines while announcing the easing of sanctions on some already loaded Iranian crude oil, attempting to control energy prices. This indicates that the oil price issue has entered the policy response stage, making it harder for the market to treat it as short-term noise; correspondingly, risk assets were priced more cautiously on Friday.

II. Major Trends

From a slightly longer-term perspective, the underlying market structure hasn't been completely rewritten, but the short term has indeed re-entered contraction. Over a three-month horizon, RSP still outperformed SPY (-0.85% vs -4.70%), indicating stronger mid-term breadth compared to indices supported by only a few heavyweights; SPYV continued to outperform SPYG (-1.67% vs -6.93%), showing that value style consistently outperformed growth. However, by Friday, both large-cap and small-cap stocks along with both styles came under pressure together: IWM fell 2.18%, QQQ dropped 1.85%, and SPY declined 1.70%, suggesting that Thursday's partial recovery did not continue, with short-term risk appetite having fully contracted again. Meanwhile, over a two-week period, MAGS fell 4.30%, with tech giants still undergoing decongestion, leaving the market temporarily lacking a true core to lift the index back up.

III. Market Sentiment

Market sentiment clearly deteriorated again. VIX jumped to 26.78, indicating a rapid increase in demand for protective positions, and the market's tolerance for sudden shocks decreased once more. The CNN Fear & Greed Index fell from 17 to 15, reflecting a continued decline in subjective risk appetite, quickly erasing signs of “panic cooling” seen on Thursday. Over a three-month horizon, RSP still outperformed SPY, indicating the mid-term breadth foundation hasn't completely collapsed; however, under the combined effect of the quarter-end expiry and high volatility, funds seemed to first pull back risk exposure before deciding whether to re-engage. The current market condition is closer to a 'comprehensive risk reduction' rather than healthy consolidation.

IV. Market Scan

1. Index ETFs

Major index ETFs retreated across the board, with small caps performing the worst. DIA falling 1.12% actually became the relatively most stable one, indicating that while traditional blue chips are under pressure, their declines remain controllable; SPY fell 1.70% and QQQ dropped 1.85%, showing synchronized weakness in large caps and technology; IWM fell 2.18%, the worst performer, meaning the high Beta recovery seen on Thursday was quickly interrupted on Friday. Such a combination usually suggests not rotation but an overall contraction in risk budgets.

2. Sector Performance

The sector-level dynamics also tell a story. XLF rose slightly by 0.18%, barely staying in positive territory, aligning with the repricing environment of interest rates; meanwhile, XLU plunged 4.06% and XLRE fell 3.17%, significantly underperforming, with 'interest-rate sensitive' sectors being the first to be cut. Technology also showed weakness, with XLK dropping 2.27%; XLY, XLB, and XLI all fell more than 1%. Overall, Friday was not about 'defensive sectors supporting the market', but more like synchronized reductions across most sectors except finance.

3. Seven tech giants

Within the seven major tech stocks, there remains a lack of a true defensive anchor. NFLX rose just 0.09%, showing minimal resilience; but NVDA fell 3.28%, TSLA dropped 3.24%, GOOG declined 2.27%, and META fell 2.15%, indicating that high valuation and high volatility tech sectors are still actively cutting positions. As long as these leading indicators of market risk appetite continue to fall, indices will struggle to break out of their weak trends.

4. Chinese EquitiesChinese concept stocks continued to weaken on Friday, with widespread declines. PDD Holdings fell 1.27%, making it relatively resilient within the sector; Bilibili plummeted 4.18%, the weakest, followed by Baidu down 3.99%, Futu declining 3.19%, KWEB dropping 2.96%, JD.com falling 2.68%, and NetEase down 2.19%. This indicates that Chinese concept stocks currently lack an independent main theme and are mostly being reduced globally as risk appetite retreats.

5. Cryptocurrencies

The divergence within the crypto chain is also worth noting. Bitcoin rose 0.83% on the day, which seems decent on the surface, but related stocks failed to keep up: CRCL fell 1.79%, though relatively less, while MARA plunged 8.24%, significantly weaker than the cryptocurrency itself. This 'stable coin, weak stock' combination typically signals that the market prefers to reduce high leverage, High Beta risk exposures rather than chase trend movements in crypto assets.

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