Bears took an early run at the markets gains today, but bulls not only came out ahead but have pushed stocks even higher–for now.
AP The S&P 500 has risen 0.9% to 1,892.35 at 12:29 p.m. today, while the Dow Jones Industrial Average has gained 107.01 points, or 0.7%, to 16,428.08. The Nasdaq Composite has advanced 1.3% to 4,267.08 and the small-company Russell 2000 has jumped 2.4% to 1,074.23. But with most of the selling happening at the end of the day, it’s probably too early to get excited.
If you read the papers–or this blog, for that matter–you know that reasons for the recent selloff include fears of a rate hike, jitters about deflation, and concerns about European growth, or the lack thereof. The folks at Birinyi Associates, however, admit to having little idea what’s really been driving stocks lower:
We have often likened the bull market to a drive across the country and said that it was presumptuous to leave New York on a Mon-day and assume you would arrive, on time, in LA for an 8:00 PM Saturday dinner reservation. The trip would have some detours, some bad weather, a flat tire along with some beautiful days and light traffic.
The stock market has had a detour and investors are – and should be – concerned. We continue to expect higher prices but recognize that there are significant issues which should be addressed. Our biggest concern is that we are not sure as to what is happening…
A faltering world economy is a valid concern, although China's continued growth has regularly been questioned since their Olympics. Now Germany and France have replaced Greece and Spain as economies of concern and the market has, rightly so, taken notice.
The biggest question we have is oil. No commodity is more tracked, analyzed, and discussed and yet all of a sudden we have a glut and a surplus? The combination of Europe, oil, Ebola, as well as Hong Kong and the continuing irresolution of Ukraine are overwhelming and disconcerting.
RBC’s Jonathan Golub and team predict the Vix will fall, stocks will rise and the stocks of small companies will outperform those of large ones”
Investor concerns regarding global growth have pushed the market lower and the VIX to a multi-year high. The data shows a strong inverse correlation between volatility and U.S. stock prices. Historically, every 7% move in the VIX has corresponded with a 1% move in the S&P500, and an even greater move in Small Caps…
Mini spikes in the VIX are quite normal; larger spikes tend to be driven by recessions or systemic risk issues…Market delivers above-average returns following volatility spikes.
What are above average returns? When the Vix spikes above 20%, the S&P 500 has averaged a return of 6.4% during the following three months, while the Russell 2000 has returned 8%.
Is anyone willing to bet on those averages?
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