Back in January, I wondered: Had the world gone mad?

The stock market was enjoying its easiest, most persistent rally in history. Investors were bulled up by President Donald Trump's pro-business agenda, which included cuts to taxes and regulation. And mega-cap technology stocks going by the moniker "FANGMAN" (referring to Facebook, Apple, Netflix, Google-parent Alphabet, Microsoft, Amazon and Nvidia) on Wall Street trading desks were leading the charge.

Private markets were in the game, too, with everything from overvalued unicorns to overleverage and overly aggressive pension plans. This despite tepid corporate earnings, ongoing monetary policy tightening from the Federal Reserve and evidence from the bond market that sentiment was overheated.

In that earlier blog post, I warned that the low volatility regime was at risk of eating itself. And it did, as the early February bout of market chaos—based on fears that wage-push inflation would force more aggressive Fed tightening from new chairman Jerome Powell—nuked a popular short-volatility ETF.

Markets have yet to recover. In fact, the situation is getting worse.

Despite Spotify and Dropbox threading the needle to go public in these conditions, the S&P 500 just closed below its 200-day moving average for the first time since June 2016 and has fallen into correction territory, down more than 10% from its January high, as FANGMAN stocks get hit hard. Bitcoin and other cryptocurrencies are dropping in sympathy, with BTC testing below the $7,000 threshold as its correlation to stocks seems to increase during times of stress.

Specific headwinds are in play. President Trump himself has turned into a headwind, loosening a daily Twitter barrage against Amazon founder and CEO Jeff Bezos when he isn't threatening new actions in a simmering trade war with China. Facebook is dealing with the backlash from the Cambridge Analytica revelation of personal data weaponization for political aims. And Nvidia fell on worries that a fatal accident involving an Uber autonomous test vehicle and a pedestrian will tap the brakes on self-driving systems.
Chart from Deutsche Bank showing 10% corrections are rare when the unemployment rate is falling
Broader headwinds are at work as well. The stock market just suffered its worst start to a second quarter since 1929. Outside of a recession, as noted in the chart above, selloffs of this magnitude are rare. The Federal Reserve is set to raise interest rates by another two quarter-point hikes this year at a time when short-term rates are already pressuring interbank lending markets and thus corporate funding costs, according to a study by Goldman Sachs.

Should this dynamic continue, the two biggest stories in private markets could come under threat: The hope the IPO exit window is finally opening for large VC-backed companies, and the ongoing hype around cryptocurrencies and ICOs.

Despite the stock market weakness, popular secure messaging service Telegram raised $1.7 billion from two pre-ICO sales. However, it's hard to see this trend continuing should the tech-driven market selloff become disorderly and bitcoin's correlation to the weakness increase again. (I have written skeptically of the crypto craziness in the past and believe the hype is still too hot.)

As for the hope that the "go public" pipeline has reopened, SPOT dropped 12% from its high following its debut on Tuesday, cutting its first-day gain in half. China streaming video provider iQiyi had a rough debut last week, falling from its pre-listing price of $18 to close its first day down nearly 14%. DocuSign filed its S-1 in preparation to IPO, but the company listed Trump's trade policies as a risk factor. Dropbox rose 40%+ on its first day of trading but has flatlined somewhat over the past week.

Has the bloom come off? Renaissance Capital notes $15.6 billion was raised in IPOs in the first quarter, the most in more than three years and $1 billion more than all the IPOs seen in 2017. If insiders were waiting for the market top to exit, the last few months were the best time to pull the cord. Further downside weakness will close the door as investors shun risk.

A turnaround needs to happen soon. In its daily report, Sundial Capital Research notes that when the S&P 500 lost its 200-day moving average on Monday, "[it] did so with extreme prejudice" of the type seen before the 1929, 1987 and 2007 market collapses. Amid the selloff, every single stock in the tech-heavy Nasdaq 100 index fell, something that has only been seen 10 other times in the past 22 years.

The severity of the selloff suggests that'll be hard for the market bulls to muster in this environment.

Related read: Credit markets on edge amid bankruptcies, Fed tightening