Volatility Swells Ahead: Prep for Choppy Markets
After a placid summer, markets are bracing for stormier conditions in the months ahead. Technical and fundamental factors point to increasing volatility that investors need to be prepared for.
Tech Rally Brings Frothy Valuations
• Monday's big bounce was led by tech's 2.4% gain, with semis like Nvidia surging 4.8%
• However, with 80% of S&P 500 companies beating earnings estimates so far...
• ...The forward P/E has climbed to a lofty 22.8x, well above historical averages
Turbulent August-October Period Looms
• Historically, Aug-Oct is the weakest period for markets, with higher volatility
• In 2022, the S&P 500 plunged 11% from Aug 1 to Oct 30 before rallying 16%
• Similar volatility swings are common during this period as positioning unwinds
VIX Signals Choppiness Underway
• The VIX volatility index fell 10% on Monday to 14.91 but remains elevated
• Analysts say a VIX around 12.5-13 would be more stable for a continued rally
• Spikes in the VIX often precede periods of market stress and volatility
Data Clouds on the Horizon
• Key economic reports like PCE inflation due this week could roil markets
• The July 25-26 FOMC meeting will provide rate guidance closely watched by investors
• Resilient earnings are bucking concerns, but macro data remains a wild card
While the tech rally provided a strong start to the week, several indicators are flashing warnings about increased volatility through year-end. Investors may need to batten down the hatches and prepare for stormier market conditions over the next few months.
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