2 Causes of Today’s Stock Market Volatility

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December 11, 2018 2:14pm NYSE:VXX

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From John S. Tobey:

Yesterday (Monday, 12/10) is the perfect example of the futility in trying to answer “Why the morning selloff?” The answer is not in the fundamentals, although the media certainly tried. All the early morning reports offered reasons, but the very range shows them to be inaccurate guesses:

  • Brexit
  • Apple
  • Interest rates
  • Global concerns
  • Trade tensions
  • Bank selloff
  • Oil price

Underscoring the wrongness of shopping for fundamental reasons is the complete reversal later in the day. Are we to believe that the market had fully recovered from all those ailments? Of course not.

Important: And that goes for today’s stock market opening rise driven by happy tariff news!

There are two causes of this volatility:

1. The arrival of the bear market

Here we were, enjoying the bull market’s new highs when – Wham! – the bear bursts in and knocks the market down. With all the dust in the air, we, in rose-colored glasses, could not see the bear – but his effect was certainly unnerving. Hence, volatility rose.

At this point, investors and fundamentals ruled the thinking and buying/selling. Therefore, the great hunt for what just happened started. There were lots of fundamental hypotheses, but only one seemed to fit the bill of being able to affect the whole stock market and being a major shift from full-on bull market: The prospect of slowing growth.

The Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures ETN (VXX) was trading at $40.93 per share on Tuesday afternoon, up $0.82 (+2.04%). Year-to-date, VXX has gained 46.60%, versus a -0.92% rise in the benchmark S&P 500 index during the same period.

VXX currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #4 of 11 ETFs in the Volatility ETFs category.

This article is brought to you courtesy of Forbes.

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