Increased volatility of stocks is a matter of major concern for both rank and file investors and die-hard economists. Abrupt rises and falls of stocks make it hard to predict the future of investments and cause analysis paralysis not only to low-risks investors, but also to strategists and traders used to dealing with poorly predictable emerging markets.
This week has seen one of the most disturbing volatility streaks lasting for five consecutive days, a rally mode that caused S&P 500 Index corrections of 1.3 percent to 1,886.76, on top of a 1 percent slide between October 10 and 15 that concluded a string of four reversals in a row. Insecurity grew with the brief plummeting of the benchmark index down by 3 percent, and then going up on October 15 to four-year high.
There have been rumours about the Central Bank coordination, alongside with fears of Europe being on the verge of economic recession with the end of Federal Reserve bond buying; all of these speculations unfolded against the backdrop of wild market swings. Just as the number of people diagnosed with Ebola surges, so do the fears about the health of world stock markets. As a result, the Chicago Board Options Exchange Volatility Index has seen its two-year high on October 15, rising over 26.
Investors experienced yet another disappointment as the increase in Netflix Inc. subscription price brought decline in the network growth and eventual slide in weekly position down by 21 percent. JPMorgan Chase & Co. followed with a 4 percent drop, a two-month low that failed to meet the expectations of investors.
Dow Average jumped 1 percent from 163.69 to 16,380.41 while the Nasdaq Composite Index saw a decline of 0.4 percent.
At the same time, the Wednesday market selloff provided an unparalleled opportunity to buy stocks, since volatility lows are expected to be brief and not to change much about the general prognosis for the U.S. economy in the long run.
Canada’s S&P/TSX Composite Index chart tumbled down by 1 percent for two days before retreating back to its usual level after another two days.
Herbert Perus, the head of equities at Vienna Raiffeisen Capital Management in charge for $36 billion, referred to this week as a very spectacular thing to watch. “A lot of risks came into the minds of short-term orientated traders”, as he said in his interview to Bloomberg.
Professional high-risk traders observed the highest highs and the lowest lows of global funds. Some 20 of Russell 1000 Index (RIY) stocks being mostly made up by aggressively managed portfolios declined 8.4 percent since early October, decreasing by half of their full index.
Low-risk funds have, too, been a subject to some considerable volatility. The Russell 2000 Index followed downward trend, dropping 13 percent between March and October, but abruptly surging in Friday afternoon trading by 2.8 percent.
The Standard & Poor’s 500 Index is down 6.2 percent from the previous month as panic grips investors amid the extremely volatile European market. This slide shows investors’ reluctance to buy government bonds with the European market still trying to turn positive in the conditions of growing indebtedness.
Major economist professionals speak about the Central Bank being most likely to consider the postponement of the bond purchasing that was supposed to end the month. This opinion is supported by Benoit Coeure of ECB executive board and James Bullard of St. Louis Fed. These speculations bring some comfort to investors and traders amidst the ongoing turmoil of the rally mode.
According to the spokesperson of Oak Associates Ltd. In Akron, Ohio, the existing state of things is a result of many factors coming together in an unfortunate confluence, causing further market instability. The worrying tidings of the Ebola virus topped with the European crisis as well as market shocks create a background for even worse volatility of global funds.