- U.S. stocks have seen sharp moves down and up in October. The DJIA fell by more than 1,000 points over two days last week, largely driven by fears that rising interest rates might dampen the economic recovery.
- Market volatility has continued into this week, though stocks have recovered some of last week’s decline, as the first days of Q3 earnings season have shown that corporate profits remain broadly healthy.1
- With several large market movements already in October, the CBOE Volatility Index (VIX), which measures investor expectations of near-term volatility, has quickly reversed what had been a long downtrend since it last spiked in February.2 As the chart highlights, it has risen well above its 12-month average thus far in October.2
- If anything, market activity in recent weeks has served as another reminder – as we first saw in February – that markets are forward looking and that volatility can jump with very little notice, even within a broadly healthy economic environment like today’s.
- With the Fed projecting another four rate hikes before December 2019, rising geopolitical tensions in the Gulf and fund managers almost universally looking for global growth to decelerate next year, investors may be wise to prepare for heightened volatility in the coming months.3,4
1 FactSet, https://bit.ly/2R1hjjk.
2 Bloomberg, as of October 18, 2018.
3 Federal Reserve Summary of Economic Projections, https://bit.ly/2ONvfMW.
4 Bank of America Merrill Lynch, Capital Market Outlook, https://bit.ly/2EqC9a3.
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