Market Roller Coaster: S&P 500 Swings Wildly Amid Trading Overreach, Global Market Turmoil
Saturday, Aug 10, 2024 5:00 am ET
This market volatility primarily stemmed from trade behaviors rather than significant economic deterioration.
The S&P 500's rollercoaster ride this week witnessed a nearly 4% plunge on Monday, marking the most significant drop since September 2022. This was followed by the largest surge since November 2022, with market fluctuations becoming increasingly pronounced.
Coincidentally, international financial markets also experienced severe turmoil this week, with significant swings in global stocks, bonds, forex, and cryptocurrencies.
So, will this "roller coaster" trend become the norm? Sanders Morris Chairman George Ball suggests:
"From now until Labor Day, the market is prone to fluctuations. Trading volume will be low, and various economic data releases will stir emotions."
The main reasons behind market turmoil seem to be trader overreach rather than significant economic decay. Following last week's disappointing employment report, U.S. stocks plunged on Monday. Simultaneously, the yen's appreciation led to a hit to carry-trade strategies, causing massive unwinding.
Longtail Alpha's Founder, Vineer Bhansali, considers this a "healthy correction":
"Currently, it appears to be a healthy correction. Crowded positions and panic accelerated selling, with momentum trades leading everyone to hold highly concentrated positions, exiting amidst poor liquidity." Michael de Pass, Head of Global Rates Trading at Citigroup, noted that markets tend to overreact during volatile periods:
"When these abrupt swings occur, markets will always overcorrect, which is precisely what's happening... This is a bond-market-driven overcorrection, with the bond market possessing significant upside potential given current federal fund rates." Jitesh Kumar, Cross Asset Derivatives Strategist at Société Générale, also pointed out the role of quant funds in driving the downturn:
"Quant investors adjusting exposure based on volatility had to reduce positions. Given that summer isn't the most liquid period, volatility-based outflows could exacerbate the sell-off."
Over the next two days, U.S. stocks oscillated. On Thursday, a larger-than-expected drop in unemployment claims allayed concerns about weakening labor markets, causing stocks to bounce back significantly. There emerged a consensus: this turmoil was primarily due to trader actions rather than substantial economic deterioration.
Despite tech giants like Alphabet, Amazon, and Tesla seeing declines after missing earnings expectations, the overall scenario remains robust. By Friday, analysts projected the S&P 500's profit growth at over 14% for 2024 and 11.8% for 2025.
Even with market upheaval, equity fund investors remained optimistic. According to reports, investors funneled nearly $10 billion into various equity funds in the week ending Wednesday, including $3.3 billion into tech funds.
Given the data at hand, the market appears poised for further ups and downs in the weeks ahead.
The S&P 500's rollercoaster ride this week witnessed a nearly 4% plunge on Monday, marking the most significant drop since September 2022. This was followed by the largest surge since November 2022, with market fluctuations becoming increasingly pronounced.
Coincidentally, international financial markets also experienced severe turmoil this week, with significant swings in global stocks, bonds, forex, and cryptocurrencies.
So, will this "roller coaster" trend become the norm? Sanders Morris Chairman George Ball suggests:
"From now until Labor Day, the market is prone to fluctuations. Trading volume will be low, and various economic data releases will stir emotions."
The main reasons behind market turmoil seem to be trader overreach rather than significant economic decay. Following last week's disappointing employment report, U.S. stocks plunged on Monday. Simultaneously, the yen's appreciation led to a hit to carry-trade strategies, causing massive unwinding.
Longtail Alpha's Founder, Vineer Bhansali, considers this a "healthy correction":
"Currently, it appears to be a healthy correction. Crowded positions and panic accelerated selling, with momentum trades leading everyone to hold highly concentrated positions, exiting amidst poor liquidity." Michael de Pass, Head of Global Rates Trading at Citigroup, noted that markets tend to overreact during volatile periods:
"When these abrupt swings occur, markets will always overcorrect, which is precisely what's happening... This is a bond-market-driven overcorrection, with the bond market possessing significant upside potential given current federal fund rates." Jitesh Kumar, Cross Asset Derivatives Strategist at Société Générale, also pointed out the role of quant funds in driving the downturn:
"Quant investors adjusting exposure based on volatility had to reduce positions. Given that summer isn't the most liquid period, volatility-based outflows could exacerbate the sell-off."
Over the next two days, U.S. stocks oscillated. On Thursday, a larger-than-expected drop in unemployment claims allayed concerns about weakening labor markets, causing stocks to bounce back significantly. There emerged a consensus: this turmoil was primarily due to trader actions rather than substantial economic deterioration.
Despite tech giants like Alphabet, Amazon, and Tesla seeing declines after missing earnings expectations, the overall scenario remains robust. By Friday, analysts projected the S&P 500's profit growth at over 14% for 2024 and 11.8% for 2025.
Even with market upheaval, equity fund investors remained optimistic. According to reports, investors funneled nearly $10 billion into various equity funds in the week ending Wednesday, including $3.3 billion into tech funds.
Given the data at hand, the market appears poised for further ups and downs in the weeks ahead.