Heat Map of the Market: Volatility Up, Stocks Down

Heat Map of the Market: Volatility Up, Stocks Down

Printer-friendly version
a a
Type Size: Small

Big swings are back on Wall Street.

As investors increasingly worry about when and how central banks will pull back on their monetary stimulus programs, what had been a fairly steady climb for U.S. stock indexes has turned bumpy in recent weeks.

The market environment has clearly changed, resulting in more churn than investors had seen in months. The Dow Jones industrial average, for example, started the year by going 112 trading days without suffering three straight losing sessions – the longest such streak in its history. That bullish run was snapped this week.

"A perceived peak in global central bank stimulus has coincided with a near-term top in global equity prices," Sam Stovall, chief equity strategist at S&P Capital IQ, wrote in a note to clients Wednesday. "In the U.S., an attempt at increased transparency led to a surge in investor anxiety surrounding the anticipated tapering of the Fed’s bond buying program and put pressure on equity prices."

That lingering uncertainty about future Fed action has, for now, fueled stronger market gyrations. The Chicago Board Options Exchange’s Volatility Index, or VIX -- the market’s so-called fear gauge – has surged 37 percent over the last month, though it still remains well below the levels that would indicate extreme anxiety in the markets.

The Dow, meanwhile, has gained or lost more than 100 points in five of the eight trading sessions this month, through Wednesday. On two other days, the index swung about 200 points intraday before closing with more modest changes. The Dow had 14 triple-digits intraday swings in May, compared with four such days in January and seven in March. The market hasn’t been this volatile since May 2012, when concerns over the Eurozone’s debt crisis caused the Dow and S&P 500 to drop more than 6 percent.

The pullbacks in U.S. stock indices has been smaller this time around, at least as of now.

Japan’s Nikkei index may be officially in bear market territory, having fallen more than 20 percent from its recent high, but the S&P 500 has fallen about 2.7 percent since May 21, while the Dow is about 2.1 percent below its May 28 closing high. As the chart below from the Bespoke Investment Group shows, U.S. equity ETFs may be struggling lately, but they still look far better than many overseas counterparts.

Source: Bespoke Investment Group

As editor in chief, Yuval Rosenberg oversees all aspects of The Fiscal Times' website and email newsletter. His writing has appeared in publications including BusinessWeek, CNBC.com, CNNMoney.com, Fast Company, Fortune, Newsweek, Money and Time.