The only reliable trend in markets right now is wilder swings
BNN Bloomberg
Down one day, up the next, the stock market is making life miserable for anyone in search of a coherent narrative to explain its moves. One thing has stuck, though: Episodes of daily upheaval are worsening.
Down one day, up the next, the stock market is making life miserable for anyone in search of a coherent narrative to explain its moves. One thing has stuck, though: Episodes of daily upheaval are worsening.
Particularly at the speculative end, the trend is pronounced. In the Nasdaq 100, the absolute size of close-to-close moves has been roughly 1.5 per cent a day this month, up or down. That’s three times as great as any December since the Christmas rout of 2018 and almost twice the average move of the last year.
While many forces are at play -- witness all the evidence of the fast-spreading omicron variant on Friday -- it’s hard not to notice volatility is picking up at a time when the promise of unending central bank liquidity is in jeopardy. The Federal Reserve is ramping up hawkishness while the Bank of England raised interest rates, marking the end to an easing cycle that underpinned a 20-month, US$60 trillion rally in global equities.
“The market has spent the last few weeks digesting the likelihood of an accelerated taper schedule, beginning with a contraction in software multiples throughout earnings season despite strong operating results and relatively strong guidance,” said Renny Zucker, chief investment officer at Capital Y Management. The rising volatility “is a reminder that Fed action in the coming year could be more impactful after nearly two years of fearless trading in the riskiest of risk assets.”
Big reversals played out over the week as investors tried to get a grip on whether Fed Chair Jerome Powell will be able to engineer a soft landing by taming inflation without choking off growth. While investors initially took solace in Powell’s robust endorsement of the economy, characterizing demand and income as strong, a sense of uneasiness sank in later with a drop in long-dated Treasury yields reviving worries over its continued strength.
