Broker Check

Volatility On the Rise

April 08, 2024

Two weeks ago, we mentioned that one of the factors causing concern for us regarding the stock and bond markets in the US is the absence of volatility and the relatively low level of the VIX, which serves as somewhat of a fear indicator. Plain and simple, with all the geopolitical challenges in the world right now, if investors aren’t afraid, then we are.

Well that changed last week and we saw volatile markets along with the VIX jumping significantly higher. Take a look…

The VIX rallied to the highest level in three months and the NASDAQ very quickly sold off 3% from its high print.

This probably had something to do with military challenges in Iran. Investors were taking profits due to fear there may be some military escalation. Another factor that most likely added to last week’s volatility was interest rate expectations. Fed Chairman Powell made comments assuring market participants that interest rates will likely decrease later this year. Then recent employment numbers came out quite strong. If employment remains firm, the Fed may find it difficult to lower interest rates as a tight employment market can be a big contributor to inflation. Although there are many obvious questions regarding the employment reports coming out of the Department of Labor, the economy and asset markets are holding together remarkably well as we have mentioned repeatedly over the last few months.

Of course, some of the questions going forward cannot be answered – such as if/when/where new military escalations take place. Now the lowering of interest rates is coming into question. The Fed Funds Futures are now pricing just below a 50% chance that interest rates will be lowered at the June meeting. So, we are going to mention it yet again. The markets, especially technology stocks, are holding together remarkably well considering interest rates are higher than anyone anticipated they could go AND they are remaining steady. This continuation of higher interest rates was a big part of the letter to shareholders from Jamie Dimon of Chase Bank. His opinion is similar to ours that although the economy and markets are holding together well, inflation isn’t sufficiently subdued yet and subsequently interest rates will probably stay high for longer than most are expecting.

We will continue to watch the economic news to monitor for a slowing of the economy and changes in inflation. Intuitively there will be consequences for the rollercoaster ride the Federal Reserve has sent us on – particularly since their Covid overreaction – but so far not much has manifested. It does appear that the American consumer is starting to run out of steam so we will dive deeper into that next week.

Regards and good investing,

Greyson Geiler