STOCKS CRUMBLE, BONDS JUMP AFTER EMERGING MARKET ROUT: Here's What You Need To Know

First, the scoreboard:

• Dow: 15,882.9 (-314.4, -1.9%)
• S&P 500: 1,790.5 (-37.9, -2.0%)
• Nasdaq: 4,128.1 (-90.7, -2.1%)

And now the top stories:

• Most market watchers blamed the emerging markets for today's action. The Turkish lira fell to a record of 2.33 per dollar. South Africa's rand, Brazil's real, and Russia's ruble all got slammed. It's been an absolutely brutal week for these currencies.
• So there were a couple of competing theories to explain what happened in the emerging markets today. Most discussions talked about triggers, which included Thursday's disappointing China Flash manufacturing PMI and Argentina's shocking currency devalution, which saw the peso drop 13% against the dollar. Regarding China, concerns have generally been increasing as elevated interest rate volatility has coincided with already decelerating economic growth.
• These triggers may have brought attention to the prospect of tighter monetary policy from the Federal Reserve. As the U.S. economy regains its footing, the Fed is expected to reign in monetary stimulus and allow interest rates to rise. This would also mean a strengthening dollar. And that in turn would mean weaker emerging market currencies, who could find themselves struggling to pay for increasingly expensive imports and financing increasingly expensive debt.
• And it's not just the Fed. Citi's Steven Englander noted that the Bank of England, the Bank of Japan, and the Swiss National Bank had taken a more hawkish tone very recently. This reinforced the idea that strength would shift from emerging market currencies to developed market currencies.
• The sell-off saw money flow into the U.S. Treasury market where the yield on the 10-year note tumbled to 2.70%. But the action in the Treasury market sparked an alternative theory regarding today's market action. You see, the consensus had broadly been the interest rates would go up this year, meaning bond prices would go down. This may have been one of the most agreed upon calls coming into the year. "Its mostly hedge funds and fast money accounts that have played it from the short side from the beginning of 2014," said Tom di Galoma, head of fixed income rates sales at ED&F Man Capital Markets. "Most were looking for higher rates in 2014 near 3.5-4% on 10-years. This rally is all about short positions being alleviated and covered."
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