August 12, 2024

The Markets

Markets were gripped by August jitters.

Last week, financial markets were volatile. The CBOE Volatility Index (VIX), which is known as Wall Street’s fear gauge, rose to the highest level in four years before cooling down. “While spikes in the VIX often coincide with deep market sell-offs, they can also be short-lived and precede a rebound for stocks,” reported Jesse Pound of CNBC.

Investor uncertainty contributed to market fluctuations last week. There were many reasons for the uncertainty. For example, some investors:

Were unsettled by economic data. Markets stuttered after a weaker-than-expected jobs report. Some investors panicked, believing the United States might be headed for a recession rather than a soft landing.

“A slowing economy could create challenges for equities to achieve the kind of earnings growth that analysts were penciling in for the quarters ahead,” noted a source cited by Connor Smith of Barron’s.

On Thursday, investors regained some confidence after data showed the number of people filing for unemployment claims was lower than expected. The information suggested the labor market remained solid. The subsequent rally was unexpected because jobless claims don’t normally move the market, reported Barron’s.

Concerned about geopolitical risks. Recently, the United States, the United Kingdom, Australia, France, Canada, South Korea, Saudi Arabia, Japan, Turkey and Jordan all warned their citizens to leave Lebanon as quickly as possible on fears that hostilities in the Middle East may escalate, reported Tom Bennett and Hugo Bachega of the BBC.

“Iran, Israel and Hezbollah all have the capabilities to continue to attack each other without triggering physical supply cuts in energy or blocking global shipping. Those are the kinds of effects that would trigger a major market reaction. Though a persistent danger is that, in the fog of war, one party or other goes too far or misreads its adversaries’ intent. Events can quickly spiral out of control,” reported Matt Peterson in Barron’s.

May have been less experienced. It’s summertime and people—including money managers and traders—are vacationing. The Economist explained,

“Spare a thought, then, for the 20-somethings left to run the northern hemisphere’s trading desks over the next few weeks, while their bosses doze on a beach. Possibly for this reason, markets are often more jittery than usual during the summer months. Last year, for example, it was in August that American share prices began their final protracted fall before a storming bull run that took them to new all-time highs. That may be down to liquidity, which…tends to be slightly thinner during the holiday season than in the rest of the year. It may also be that the lack of veterans on banks’ trading floors allows panic to set in more easily. Prices can swing a lot further before someone musters the courage to push back.”

Despite sharp swings higher and lower, major U.S. stock indices finished the week close to where they started it. The yield on the benchmark 10-year U.S. Treasury finished the week higher.

Weekly Focus – Think About It

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