In a week filled with market volatility and uncertainty, the stock market managed to stage an impressive rebound in the final stretch, resulting in its biggest back-to-back advance in 2024. This turnaround came after a series of ups and downs that had rattled the global financial world, including a bout of panic selling on Monday. The S&P 500, which had nearly wiped out its losses for the week, rose 0.5% amidst the turmoil.
The recent market turbulence in August has been fueled by concerns about the Federal Reserve potentially being behind the curve in response to weak economic data. Additionally, conflicting views on Japan’s policy path have added to the convulsions, with the impact of the battered carry trade reverberating across asset classes. This environment has left traders on edge and investors on high alert.
Liz Young Thomas at SoFi highlighted the sensitivity of markets to cooler US economic data and the far-reaching impact of the yen carry trade. She also noted how investors have become conditioned to expect rate cuts as a solution to any market turbulence. Ronald Temple at Lazard acknowledged that the market had appreciated significantly, leading to extended valuations, but viewed the recent selloff as excessive.
Despite the market’s recent struggles, John Stoltzfus at Oppenheimer Asset Management remains bullish on stocks, citing solid US economic fundamentals that he believes will soon lead to a reduction in tight monetary policy. The sentiment was echoed by other market analysts who see the recent downturn as a potential opportunity for long-term investors.
The market’s fear gauge, the VIX, which spiked above 65 on Monday, has since subsided to around 20. This unusual surge has prompted former Treasury Secretary Lawrence Summers to call for an investigation into the historic volatility spike. Nicholas Colas at DataTrek Research emphasized the importance of interpreting volatile market conditions, noting that while uncomfortable, they do not necessarily signal a robust recession or the end of the current bull market.
Looking ahead, market participants are awaiting major economic news, such as the consumer price index, which could impact market volatility. Mark Luschini at Janney Montgomery Scott anticipates subsiding volatility in the absence of significant economic developments. However, with August and September historically being weak months for equities, volatility may persist, especially in the midst of a contested presidential election.
Overall, the market’s recent rollercoaster ride serves as a reminder of the inherent volatility in equity markets. While the recent turbulence may have unnerved investors, it also presents potential opportunities for those with a long-term perspective. As the market continues to navigate uncertain waters, investors will need to stay vigilant and adapt to changing conditions to capitalize on potential opportunities.
