USA TODAY US Edition - - MONEY - Adam Shell | @adamshell | USA TO­DAY

The mar­ket roller coaster is back. Af­ter two months of mar­ket calm, Wall Street is again ex­pe­ri­enc­ing “volatil­ity” — code word for prices gy­rat­ing up and down in siz­able in­cre­ments. Con­sider the trad­ing pat­tern of the Dow Jones in­dus­trial av­er­age the past three ses­sions: It fell 250 points Tues­day af­ter a 240-point gain Mon­day and a nearly 400-point drop Fri­day. Add to that a drop in the price of oil spurred by a


Like milk, low-volatil­ity pe­ri­ods in the mar­ket have ex­pi­ra­tion dates. The Stan­dard & Poor’s 500 in­dex went up vir­tu­ally in a straight line af­ter the Brexit sell­off ’s low in late June, gain­ing nearly 9% in seven weeks be­fore notch­ing a record of 2,190.15 on Aug. 15.

That type of run can’t last for­ever. The re­turn of big price swings shouldn’t come as a sur­prise to in­vestors, says Ann Miletti, lead port­fo­lio man­ager at Wells Fargo Funds. What was un­usual, she says, was the S&P 500 go­ing two months with­out suf­fer­ing a drop of 1% or more. “That was the real sur­prise,” Miletti says.

2. RATE HIKE FEARS A key driver of higher stock prices has been low in­ter­est rates. In re­cent weeks, a spate of Fed­eral Re­serve of­fi­cials built a case for rais­ing bor­row­ing costs for the first time this year, per­haps as early as next week’s Fed meet­ing. That spooked Wall Street, which wasn’t ex­pect­ing a rate in­crease un­til De­cem­ber.

There’s a grow­ing feel­ing that the Fed — and other cen­tral banks — will be less sup­port­ive of fi­nan­cial mar­kets.

“Cen­tral bank pol­icy might not be as large a tail­wind for stocks go­ing for­ward,” says Bill Horn­barger, chief in­vest­ment strate­gist at Moneta Group. re­port that the de­mand for oil is slow­ing. The U.S. bench­mark fell nearly 3% on the news.

It’s a re­al­ity check for in­vestors who had been lulled into com­pla­cency, says Brian Bel­ski, chief in­ves­ment strate­gist at BMO Cap­i­tal Mar­kets.

Many mar­ket risks are pil­ing up all at once, rang­ing from fears that ris­ing in­ter­est rates could re­move a key pil­lar of sup­port for stocks to an over­val­ued mar­ket to the pres­i­den­tial elec­tion.

“Lots of re­al­ity fac­ing in­vestors, con­sid­er­ing the elec­tion and Fed,” says Bel­ski.

Five fac­tors driv­ing the mar­ket’s wild ride:


“Stocks have en­tered a sea­son­ally weak pe­riod,” says Bruce Bit­tles, chief in­vest­ment strate­gist at Baird. How weak? In the past 50 years, Septem­ber has been the worst-per­form­ing month for the Dow. And Oc­to­ber has a nasty rep­u­ta­tion, thanks to stock mar­ket crashes in 1929 and 1987.


“Elec­tion noise is a cat­a­lyst for volatil­ity,” Bel­ski says. Wall Street hates un­cer­tainty. And with the elec­tion out­come still un­known as Hil­lary Clin­ton and Don­ald Trump cam­paign for votes, stocks will pe­ri­od­i­cally suf­fer “short­term bouts” of sell­ing.


The S&P 500’s cur­rent val­u­a­tion — based on its price-to-earn­ings ra­tio — is higher than its his­tor­i­cal av­er­age. It’s trad­ing at more than 17 times its es­ti­mated earn­ings over the next four quar­ters, above its long-term av­er­age of 14.7. A “richly” priced mar­ket, Bit­tles says, is more vul­ner­a­ble to sell­ing when in­vestors get spooked.


Bill Stone, chief in­vest­ment strate­gist at PNC As­set Man­age­ment, says in­vestors fear the Fed will hike rates too quickly for the econ­omy to with­stand.

AUG. 31: 18,400.88 SEPT. 8: 18,479.91 SEPT. 13: 18,066.75

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