Volatility is Coming Back!

For most of this past summer (and for sure the entire month of August), the investing topic-of-the-day was how eerily quiet the markets had become. Well, the weeks of complacency and a slow melt up on low volatility and low volume have come to an end. Volatility. It’s back!

August was notable for its calm. It was the tightest range bound market for an extended dull period of time I think ever. Then last Friday, we got a double whammy. North Korea decided to up the ante on bringing the world a little closer to the brink of nuclear war. And two Fed speakers (one who is traditionally very dovish) acknowledged that the Fed needs to get hawkish. Despite economic numbers indicating weakness in the economy, it appears that the Fed is going to raise interest rates sometime this year. These events together started a selling avalanche that pushed the market out of its tight range and spurred a lot of investors to head for the exits and sell.

Monday, however, buyers stepped back in looking to score a deal on recently discounted stocks. Yet the next day the sellers have come back in force. There you have it. Put your seatbelts on. September is historically the worst performing month in the markets. Expect to see more selling pressure and more volatility. To prove my point, just take a look at the CBOE Market Volatility Index, the VIX (the Fear Gauge), spiking from 12 to above 18 in just a couple of days. So, as the Boys Scouts say, “Be prepared”.

Market Volatility Chart
Source: OptionsHouse

The above information is provided by OptionsHouse for informational and educational purposes only and is not intended as trading or investment advice or a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You are solely responsible for your investment decisions. Commentary and opinions expressed are those of the author/speaker and not necessarily of OptionsHouse. Neither OptionsHouse nor any of its employees, officers, shareholders or affiliated companies guarantee the accuracy of or endorse the views or opinions of guest speakers or commentators. Projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature and are not guarantees of future results. Results may vary with each use and over time. Any examples used that discuss trading profits or losses may not take into account trading commissions or fees.