Volatility has
suddenly returned to U.S. stocks, and for the first time all year it
doesn't appear that the weakness in equities will go away quietly in the
span of a few days. While the S&P 500 is still ...
Sat, Oct 11, 2014, 1:57pm EDT - US Markets are closed
NEW YORK (Reuters) - Volatility has
suddenly returned to U.S. stocks, and for the first time all year it
doesn't appear that the weakness in equities will go away quietly in the
span of a few days.
While the S&P 500 is still
up 3.1 percent for the year, the index is off about 5 percent from its
record high reached in mid-September, and closed out this week at the
lowest level since May 23.
"We're still in a bull
market, but in the near term things are a little bit dicey, and I don't
think the decline is over with yet," said Jeffrey Saut, chief investment
strategist at Raymond James Financial in St. Petersburg, Florida.
The
S&P 500 and Nasdaq posted their biggest weekly declines since May
2012, and the Dow Jones industrial average ended Friday in negative
territory for the year.
The S&P also posted
back-to-back intraday moves of more than 40 points this week for the
first time in three years. Wall Street's fear gauge, the CBOE Volatility
Index (.VIX), ended at 21.24 on Friday, its highest level since early
February.
Investors said they were concerned about
the eventual end of Federal Reserve stimulus, as well as weak growth
overseas and its potential effect on U.S. earnings. The slide in oil
prices has also served as a harbinger for poor demand, and investors in
general got caught betting heavily on further market gains at a time
when this stew boiled over.
The volatility recalls
the last major period of big market gyrations in the second half of
2011, when the first-ever credit downgrade of the United States and the
threat of a debt default kept investors on their toes for several
months. It is unclear whether the current turmoil will last as long.
"What
is interesting about what is going on is that you have several themes
all feeding into the same action, and that action is to mitigate risk,"
said Peter Kenny, chief market strategist of Clearpool Group in New
York.
DEFENSIVE PLAYS
The
only S&P 500 sectors to gain since the market's Sept. 18 high are
defensive - utilities and consumer staples. This week also saw the
biggest weekly inflow on record to U.S. taxable bond funds, while nearly
$7 billion left stock funds.
One sign that
investors anticipate more volatility has been in the options market,
where volumes have increased sharply. Friday marked the busiest day in
the options market since June 2013, with options volume totaling 27.2
million contracts, according to options analytics firm Trade Alert.
In
addition, the CBOE Volatility Index is trading higher than monthly VIX
futures contracts between now and May 2015, a sign of worry about
near-term ups and downs in the market.
"Just look at
options volume versus stocks volume over the past three to six months,"
said Tim Biggam, lead option strategist at online brokerage
TradingBlock.
"Options volume has been nothing but
growing and stock volume has been sort of petering out. A lot of the big
players are pre-positioning with options."
Growing
worry over Europe and other overseas economies has money managers
concerned about earnings season. The next two weeks bring a slew of U.S.
corporate results, including from S&P 500 companies with some of
the highest levels of sales abroad, such as chip maker Intel Corp
(INTC.O).
A
disappointing outlook from Microchip Technology (MCHP.O) late Thursday
has put a negative spin on the chip sector's outlook. The PHLX
semiconductor index (.SOX) saw its largest daily percentage decline
since January 2009, ending down 6.9 percent on Friday. It lost as much
as 15 percent since hitting a 13-year high less than a month ago.
Should U.S. results prove strong, however, it may stem the recent selling.
"The
earnings reports from the U.S. should help put a bottom in the market
and lead to some regained strength. We think we remain in good shape,"
said Jim McDonald, chief investment strategist at Chicago-based Northern
Trust Asset Management, which has about $924 billion in assets.
(Reporting by Caroline Valetkevitch, additional reporting by Saqib
Ahmed, Chuck Mikolajczak and Rodrigo Campos; Editing by David Gaffen and
Nick Zieminski)
end quote from:
Also, I think it must be noted that often strange things tend to happen in the U.S. stock market around September and October of every year. So, understanding this might be helpful. Didn't the Great Recession begin around fall 2007 or 2008?
So, understanding that this is the time of year when people tend to freak out regarding markets around the world might be important to think about too. So, as long as you are positioned for the long haul likely you are okay.
It is mostly short term investors who are biting their nails right now.
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