Volatil­ity roars back af­ter months of calm

Eco­nomic fun­da­men­tals should ease anx­i­eties


Whoa, what was that? Af­ter months of rel­a­tive calm, Wall Street has been jolted by a sud­den run of tur­bu­lent trad­ing.

The swoon wiped more than 1,300 points from the Dow Jones In­dus­trial Av­er­age over two days and dragged the bench­mark S&P 500 in­dex down more than 5 per­cent. The VIX in­dex, which mea­sures how wor­ried traders are about a de­cline in stocks, climbed Thurs­day to its high­est level since Fe­bru­ary, when the S&P last had a cor­rec­tion, or a 10 per­cent drop. What now? Ex­perts say this new erup­tion of mar­ket volatil­ity should not be sur­pris­ing, es­pe­cially af­ter the long stretch of rel­a­tive calm in­vestors have en­joyed.

Over the sum­mer, traders set aside wor­ries about the es­ca­lat­ing U.S.-China trade dis­pute and in­stead fo­cused on more en­cour­ag­ing de­vel­op­ments: solid eco­nomic growth and record cor­po­rate earn­ings.

It helped that stocks were on the rise — the S&P 500 hit an all-time high just four weeks ago.

So af­ter sev­eral months of gains, a pull­back would be ex­pected, said John Lynch, chief in­vest­ment strate­gist at LPL Re­search.

“Volatil­ity is also not to be feared, but em­braced, as vary­ing data points will cause bouts of mar­ket anx­i­ety. But re­mem­ber that fun­da­men­tals are still strong,” Lynch said.

The econ­omy is in­deed quite strong by many mea­sures — con­sumer spend­ing is grow­ing, unem­ploy­ment is low and man­u­fac­tur­ing sur­veys are near record lev­els. And many ex­perts say that is more im­por­tant than the mar­ket’s daily ups and downs.

Hav­ing bonds and eq­ui­ties sell­ing off may feel like the worst of both worlds, but the mar­ket’s shift isn’t as bad as it might seem, said Michael Crook, head of in­sti­tu­tional strat­egy at UBS Global Wealth Man­age­ment. He notes that the S&P 500 is ba­si­cally back to where it was dur­ing the sum­mer, and only down slightly from its all-time high.

“That’s very nor­mal volatil­ity, and while it has been acute — like all mar­ket drops — it only erases a few weeks of gains,” Crook said.


Af­ter a har­row­ing week for fi­nan­cial mar­kets, in­vestors will look for solid cor­po­rate earn­ings re­ports and healthy eco­nomic news next week to fore­stall any volatil­ity.

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