Who’s the culprit? No one knows.
Speculating on who or what is to blame for recent market weakness is a popular pastime right now. Last week, Barron’s said the search for someone to blame is a lot like a game of Clue. So far, the most common conclusions are “the People’s Bank of China with a devalued currency in Beijing,” and “Janet Yellen with a potential interest-rate hike in Washington.”
The article pointed out those theories might be flawed. After all, China’s slowdown wasn’t a surprise. Analysts have been factoring slower growth into their calculations for some time. U.S. rate hikes are highly anticipated and, even though some fear they could tip the American economy into recession (and argue recent stock price movement supports the claim), relatively strong economic data casts doubt on the idea. Some analysts believe the stock market can help predict where a country’s economy is headed. A significant drop in stock prices could be indicative of a future recession and a significant increase could suggest future economic growth.
So, why have markets headed south? Barron’s offered an alternative answer: Investors with volatility trading strategies (and/or a case of nerves) across the globe. The article pointed out the CBOE Volatility Index (VIX), a.k.a. the fear gauge, popped from a low of 13 to a high of 53 between August 18 and August 24:
“That’s higher than when Standard & Poor’s cut the credit rating of the United States in 2011, or at the peak of the European debt crisis in 2010, and seems extreme given the evidence. But volatility isn’t simply a measure of fear. It has been used to manage risk in portfolios that employ sophisticated trading schemes… Although each type of fund adjusts to market changes at a different speed, they all respond in the same way – by selling stocks… Don’t just blame the professionals. For months now, there have been warnings about overcrowding in the market’s best-performing stocks. And, when the market started to tumble in August, these stocks were among the hardest hit…”
So, who caused the market downturn? Take your pick.
Our guess…
No one really ever knows! Market Volatility Is Market Reality!
Data as of 9/4/15 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
-3.4% |
-6.7% |
-3.8% |
11.0% |
12.0% |
4.5% |
| Dow Jones Global ex-U.S. |
-4.1 |
-8.8 |
-17.0 |
2.3 |
1.0 |
1.0 |
| 10-year Treasury Note (Yield Only) |
2.1 |
NA |
2.5 |
1.6 |
2.6 |
4.1 |
| Gold (per ounce) |
-1.5 |
-6.8 |
-12.1 |
-13.0 |
-2.2 |
9.6 |
| Bloomberg Commodity Index |
-1.0 |
-15.2 |
-29.0 |
-15.5 |
-8.2 |
-6.4 |
| DJ Equity All REIT Total Return Index |
-4.6 |
-9.0 |
-3.0 |
6.5 |
10.6 |
6.0 |
S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in this index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* “Who Is To Blame For Volatility?”
Sources:
http://www.barrons.com/articles/stocks-are-downand-its-your-fault-1441434205?mod=BOL_hp_we_columns
http://www2.econ.iastate.edu/classes/econ302/vandewetering/grangercausality.htm
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