A scene at the New York Stock Exchange this month.
Stocks rebounded Tuesday from a plunge on Monday, but the pain for investors may not be over.
A recent rise in volatility indicates there is more to come. The
(VIX) rose as much as 42% from June 30 to Monday, when the
The point to remember is that the volatility index, known as the market’s fear gauge, made similar moves in 1996 and in 2002, when it rose more than 40% from June 30 to the 12th trading day of July, according to DataTrek. In the following days and weeks, volatility rose even more in those instances.
“History says we have 1-3 more weeks of volatility ahead of us, and likely lower stock prices as well,” wrote Nicholas Colas, co-founder of DataTrek.
The S&P 500’s latest dip below a key level also signifies more pain. The index fell below its 50-day moving average Monday. That has happened in six out of seven months this year, according to Instinet, and each time such a drop has occurred, the market pullbacks were longer than one-day events.
“We should be prepared for more short-term volatility,” wrote Frank Cappelleri, Instinet’s chief market technician.
Those market signals are no surprise, given that the more contagious Delta variant of Covid-19 may indeed cause a further spike in cases that might bring with it a new round of economic damage. Cases have not yet peaked, wrote Fundstrat’s head of research, Tom Lee. Daily cases could rise to 100,000 in the next few weeks from 60,000 Tuesday, based on changes in case counts in Israel and the U.K.
Lee says the S&P 500 won’t hit bottom for another week-and-a-half. After that, this could be a dip to buy.
Write to Jacob Sonenshine at firstname.lastname@example.org