Market volatility has jumped a bit this month, leaving many investors to wonder if the impressive year to date rise in the stock market is over. I have noticed the “talking heads” on the financial networks have been hyping this fear – hoping that nervous investors will tune in (and help their ratings).
Couple of thoughts on this:
1) Investors and money managers who may have been a bit too conservative this year are trying to catch up. They are using these pullbacks in the market as buying opportunities. A well defined pattern is emerging, showing us that days when the US stock market is down, buyers are showing up:
2) Past bear market “rallies” have lasted longer. Talking a look back at how investors reacted during the past major declines gives us an idea of how they might react again. (Behavioral Finance has taught us that investors react in a similar manner in similar circumstances).
3) It’s an election year. The economy is going to be a big focus in this year’s election. Happy (and employed) consumers tend to reelect Presidents. Expect to see more action from the Fed as pressure from the White House and Congress to “talk up the economy” increases.
Already rumors of the Fed mentioning that interest rates will stay low and unchanged until 2015 are circulating (previous consensus was 2014). Source: Business Insider
4) Lastly, the rise in the VIX, which measures market volatility (also referred to as the fear gauge) seems to have stopped it month long rise. This is another indication that investors and traders are looking for opportunity at these levels:
While the risk in the US stock market is definitely higher than it was back in January – the current pull back is not out of the ordinary – keep an eye on future economic and earnings reports as investors and traders may be quick to lock in year to date gains at the first sign of trouble. However, I do expect to see a much more vocal Ben Bernanke if the markets do not resume their upward trend shortly.
photo via Margan Zajdowicz