Brace for Volatility: Why Stock Markets Will Be Super Volatile for the Rest of 2024
Monday, Nov 18, 2024 3:53 pm ET
2min read As we approach the midpoint of 2024, investors are bracing themselves for a wild ride in the stock markets. The combination of geopolitical tensions, shifting economic data, and Federal Reserve policy decisions is set to drive market volatility to unprecedented levels. Let's delve into the factors contributing to this volatility and explore how investors can navigate these choppy waters.
1. Geopolitical tensions, particularly around U.S. elections, are expected to drive market volatility for the rest of 2024. The upcoming elections, scheduled for November 2024, will likely spark uncertainty and speculation among investors, leading to increased market fluctuations. Historically, election years have been marked by higher volatility, with the VIX, Wall Street's "fear gauge," often spiking around election periods. In the summer of 2024, the VIX surged to its highest level since 2020, indicating elevated investor anxiety and market uncertainty. As the U.S. elections approach, investors are likely to parse through uncertainty around who might win various offices and how the outcomes might impact policy, further fueling market volatility.
2. Economic data and Fed policy decisions are expected to significantly drive stock market fluctuations in the remainder of 2024. As the Fed moves towards an easing cycle, investors will closely monitor economic data to assess the extent of economic growth slowdown. This heightened uncertainty, coupled with U.S. elections, will likely fuel market volatility. Market expectations for Fed rate cuts have significantly shifted this summer, with investors now pricing in a 73% likelihood of four or more cuts by the end of the year, up from 64% in late May (BlackRock, 2024). This shift has driven stocks and bonds up, though not without volatility.
3. Sector-specific trends, particularly the performance of technology stocks, are expected to contribute significantly to overall market volatility in the remainder of 2024. Despite the recent rally in tech stocks, driven by AI-driven growth prospects, concerns about monetizing investments and slowing growth remain. This volatility is further amplified by the high allocation of tech stocks in major indexes, with indexes having the highest tech sector exposure posting strong gains in tandem. While the tech sector's growth potential justifies current valuations, investors concerned about valuations or slowing growth may seek to diversify their tech exposure by trimming U.S. growth or broad-based large cap exposure and adding to small caps, international, or value stocks. Additionally, the tech sector's dominance in the market, coupled with its recent volatility, may contribute to overall market uncertainty and increased volatility.
4. Investor sentiment and risk appetite are likely to fluctuate significantly in response to market conditions, exacerbating volatility in 2024. As the Fed eases monetary policy, investors may initially embrace risk, driving stock prices up. However, if economic data suggests a sharper slowdown or recession, investor confidence could plummet, leading to a sell-off. Additionally, geopolitical tensions and elections can further fuel market uncertainty.
To navigate this volatility, investors should consider diversifying tech exposure, adding to small caps, international, or value stocks, and utilizing bonds as portfolio diversifiers. Staying invested through market tumult and tilting toward quality can help mitigate risks. It's crucial to stay informed and adapt portfolios accordingly as the Fed communicates its intentions and market conditions evolve.
In conclusion, the rest of 2024 is shaping up to be a rollercoaster ride for investors, with geopolitical tensions, economic data, and Fed policy decisions driving market volatility. By understanding the factors contributing to this volatility and adjusting portfolios accordingly, investors can better navigate these challenging market conditions and position themselves for long-term success.
1. Geopolitical tensions, particularly around U.S. elections, are expected to drive market volatility for the rest of 2024. The upcoming elections, scheduled for November 2024, will likely spark uncertainty and speculation among investors, leading to increased market fluctuations. Historically, election years have been marked by higher volatility, with the VIX, Wall Street's "fear gauge," often spiking around election periods. In the summer of 2024, the VIX surged to its highest level since 2020, indicating elevated investor anxiety and market uncertainty. As the U.S. elections approach, investors are likely to parse through uncertainty around who might win various offices and how the outcomes might impact policy, further fueling market volatility.
2. Economic data and Fed policy decisions are expected to significantly drive stock market fluctuations in the remainder of 2024. As the Fed moves towards an easing cycle, investors will closely monitor economic data to assess the extent of economic growth slowdown. This heightened uncertainty, coupled with U.S. elections, will likely fuel market volatility. Market expectations for Fed rate cuts have significantly shifted this summer, with investors now pricing in a 73% likelihood of four or more cuts by the end of the year, up from 64% in late May (BlackRock, 2024). This shift has driven stocks and bonds up, though not without volatility.
3. Sector-specific trends, particularly the performance of technology stocks, are expected to contribute significantly to overall market volatility in the remainder of 2024. Despite the recent rally in tech stocks, driven by AI-driven growth prospects, concerns about monetizing investments and slowing growth remain. This volatility is further amplified by the high allocation of tech stocks in major indexes, with indexes having the highest tech sector exposure posting strong gains in tandem. While the tech sector's growth potential justifies current valuations, investors concerned about valuations or slowing growth may seek to diversify their tech exposure by trimming U.S. growth or broad-based large cap exposure and adding to small caps, international, or value stocks. Additionally, the tech sector's dominance in the market, coupled with its recent volatility, may contribute to overall market uncertainty and increased volatility.
4. Investor sentiment and risk appetite are likely to fluctuate significantly in response to market conditions, exacerbating volatility in 2024. As the Fed eases monetary policy, investors may initially embrace risk, driving stock prices up. However, if economic data suggests a sharper slowdown or recession, investor confidence could plummet, leading to a sell-off. Additionally, geopolitical tensions and elections can further fuel market uncertainty.
To navigate this volatility, investors should consider diversifying tech exposure, adding to small caps, international, or value stocks, and utilizing bonds as portfolio diversifiers. Staying invested through market tumult and tilting toward quality can help mitigate risks. It's crucial to stay informed and adapt portfolios accordingly as the Fed communicates its intentions and market conditions evolve.
In conclusion, the rest of 2024 is shaping up to be a rollercoaster ride for investors, with geopolitical tensions, economic data, and Fed policy decisions driving market volatility. By understanding the factors contributing to this volatility and adjusting portfolios accordingly, investors can better navigate these challenging market conditions and position themselves for long-term success.
