U.S. equity markets are headed lower again, and it isn't entirely due to energy at this point. While there was heavy selling to start the week, declines continued on Wednesday as a perfect storm of negative catalysts emerge.

First, global economic growth remains fragile. PMI figures earlier in the week were resoundingly negative, with China going as far as weakening the yuan again to spur economic activity. Policymakers at the Federal Reserve have also stated that interest rate hikes will continue in 2016 at a pace faster than the market is pricing in. Higher rates will surely add to financial market volatility.

Furthermore, geopolitical risks are picking up across the globe. Iran and Saudi Arabia have strife, the South China Sea remains a concern, North Korea is testing atomic bombs, and Russia may take over more surrounding countries in 2016. Collectively, the issues are rampant, but oil prices continue to drop on severe oversupply.

With both growth and geopolitical risks emerging, SPDR S&P 500 (SPY) - Get Report finally looks to be heading lower with conviction. The declines in August were the initial breakdown, but bulls weren't ready to let go of the market yet. Now, however, there remains little reason for U.S. equities to be trading only a few percentage points from record highs.

Global equities, such as iShares MSCI Japan (EWJ) - Get Report and iShares MSCI Germany (EWG) - Get Report began to break down in mid-2015, with the relatively stronger U.S. market now following behind. With both banking and semiconductor stocks leading the market lower, the downtrend could be resilient in coming months.


Data provided by Stockcharts.com

Image placeholder title

The first sector of importance is SPDR S&P Bank ETF (KBE) - Get Report . U.S. banks have held up well over the past year as higher rates were supposed to increase profit margins. Low inflation and financial market volatility, however, have weighed on longer dated interest rates, keeping a bid under Treasury bonds. With investors now questioning the health of the U.S. economy in the coming year, banking stocks are falling lower.


Data provided by Stockcharts.com

Image placeholder title

Similarly, Market Vectors Semiconductor ETF (SMH) - Get Report  is declining amid weakness in the global economy for electronic goods. Apple (AAPL) - Get Report has seen its share price collapse in recent months as analysts cited lower demand for its products. While Apple is only a small subset of the global electronics market, demand for all goods is weakening amid a fragile global economy. Just look at manufacturing numbers out of China or Japan, both of which are heavily reliant on factory activity.

The global economy remains in disarray, with policymakers having few legitimate solutions so far. Moreover, as geopolitical risks increase, global investors will become more risk averse, fleeing to lower beta assets. The global equity market selloff looks for real this time, and the U.S. is finally partaking in the move.


Data provided by Stockcharts.com

Image placeholder title

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.