The Era of Extreme Volatility
One of the big story lines over the last month or so has been the extreme movements in the global stock markets. Regular readers know that earlier in the year we commented on the big moves in the bond and currency markets. Now the volatility has hit stocks and commodities.
Generally speaking it unusual for a stock market correction to be so swift and violent. Consider the moves and headlines over the last month or so.
- China stocks plunged by 8% in one day. Stocks went on to drop a staggering 14% in one week.
- The S&P 500 in the US dropped 11% in 6 days wiping out $2.2 trillion in value from US Stocks. (Source: Casey Research)
- Crude oil prices soar 27% in biggest 3 day rally since 1990 (Source: ibtimes.com August 31st 2015)
- VIX ETF’s are in crisis mode (Source: Zero Hedge September 1 2015 (The VIX refers to the volatility index, which measures fear in the market)
The dramatic moves have prompted Marc Faber, respected publisher of the Gloom Boom and Doom report, to say when referring to the stock market in the US “I think we have reached some kind of tipping point”. (Source: foxbusiness.com September 2nd 2015)
More Big Moves Ahead?
What is interesting is that the US markets are only just beginning the historically difficult trading months of September and October. So it looks as though the wild ride will continue.
An article in arabianmoney.net highlights that if the spectacular bounce in oil were applied to the Gold price we would be looking at $1,450 an ounce. The point is that the Gold market can turn around very quickly, especially when markets are experiencing a high degree of fear and uncertainty.
In a recent article in ZeroHedge, the current environment was summed up very well by Deutsche Bank "The Biggest Problems We Face Is That We’re All Flying Blind To A Large Degree” (Source: ZeroHedge 2015 September 2).
There is no real historical template for investors to follow right now. With Central Banks losing investor confidence the markets will become ever more uncertain.
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