Is There More Stock Market Volatility Ahead?

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There have been numerous factors impacting the stock market in recent weeks. Some of these are not terribly disconcerting in their own right, but combined they create wary investors and very active online stock brokers in executing both buy and sell orders. Each investor has their own strategy and risk tolerance making decisions for buying, selling, and holding different among long-term investors and day traders.

The Financial Times reports that some financial asset managers are even questioning whether the increased intensity and frequency of stock market volatility may indicate a change in market reactions altogether.

Some of the influencing factors creating the most recent stock market swings include:

  • Sagging Chinese economy and associated side-effects on global markets. With a slowdown in this second-largest world economy demand is reduced for many products including big-ticket items such as automobiles. Demand for oil products likewise slows creating lower prices. We have yet to see what the global oil market reaction will be over a longer period of time. Increased US domestic oil production has also decreased demand from foreign sources. The recent Tianjin explosion further exacerbates the economic issues facing China.
  • Markets are anxiously waiting for the US Federal Reserve to determine whether or not to raise interest rates. This could impact US investors by tightening money supplies. A ripple effect is likely to be felt across other global markets.
  • Instability in Greece’s economic negotiations has investors concerned that such conditions could expand to the financial circumstances of other countries with fragile economies or currencies.

Other scenarios contribute to investor concerns, although many continue to exhibit optimism that markets will bounce back in short order.

What is the Stock Market Volatility Outlook?

The CBOE Volatility Index (VIX) is one of the most-referred-to barometers of stock market volatility expectations in the short term. VIX is sometimes called the “fear gauge” due to values that indicate the likelihood of volatility based on formulas applied to the S&P 500 index.  Although the volatility projected may indeed be either up or down in nature it is the volatility itself that brings the “fear” association to the VIX rating. Recent stock market volatility predicted by VIX ratings therefore brings concerns to some investors.

The reported warnings that one analyst at Wells Fargo Advantage Funds has advised that some investors are in for some “bumpy sessions in the next few weeks”. This observation is based on past recovery analysis that indicates in a sampling of 25 past recoveries they have been followed by even more volatility.

Reuters further reported that there are “new realities” that the stock market must adjust to, which will cause further stock market volatility until those adjustments are complete. This was discussed in an interview with David Tepper, head of hedge fund Appaloosa Management, who believes many stocks are over-valued but added that he would be buying shares if the stock market declined 15 or 20 percent.

What does the Outlook Mean for Day Traders?

Most analysts including representatives at Wells Fargo advise that there are plenty of opportunities in these sluggish market prices that can provide potential gains. As concerned investors sell off holdings due to concerns for even more significant losses, those lower prices present the chance for buyers to acquire high-quality stocks and bargain prices. These may result in the need to buy-and-hold until the market turns around (contrary to many day traders’ strategy) but also can reap considerable gains.

Investors need to keep in mind that all investment includes some level of risk, including total loss of capital. Due diligence and analysis need to be a part of every buy and sell order. International investments involve additional elements of risk including currency fluctuations and the possibility of political turmoil. 

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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.

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