Categories U.S. Markets News

Stock market correction hints at the beginning of a high-volatility era

So where is the stock market headed after the unexpected crash earlier this month?

While the bourses are back on the recovery mode, there is uncertainty as to how long the impact would last. What makes the latest fall stand out is the fact that it came after an unusually long period of stability, dragging the S&P 500 index into the correction territory after two years.

The 10% fall is widely perceived as modest, especially considering the record levels the index had reached last month. Meanwhile, there is room for investors to stay calm as past experience shows that a pullback of such degree typically does not result in a recession. The less optimistic among market watchers are of the view that we are on the threshold of an era of high volatility, marked by unpredictable intraday movements. To put it shortly, regulars at the market will have to be prepared for surprises in the coming days, when bizarre stock movements are expected to become the norm.

Four months

Four months – that is the maxim time needed for the market to stabilize in the present scenario. Had the S&P lost 20%, the case would have been much different and a possible rebound would have taken several quarters. Millions of dollars were washed away in what is said to be the biggest stock market crash in six years, though it lasted for a very short period.

Meanwhile, the recovery was marred by a further increase in consumer price inflation in January, forcing the S&P index to shed some of its post-crash gains, and sending treasury yields back to its multi-year highs.

Millions of dollars were washed away in what is said to be the biggest stock market crash in six years, though it lasted for a very short period.

While it is still being debated as to what exactly triggered the downturn, analysts blame it on the heightened inflation concerns that followed the bullish wage data published by the Labor Department. However, it is unwise to shrug off the downbeat market response to the appointment of Jerome Powell as head of the Federal Reserve. It is widely believed that with Powell at the helm, the central bank would take a more aggressive stance on interest rate hike. Powell, who is well known for his hawkish stance, is expected to lift the repo rate from the current record lows to normal levels.

However, Powell has vowed to take a moderate stance and to weigh stock market trends before setting the monetary policy.

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