The Dow Jones is now on track for its fifth consecutive day of losses, falling more than 3% this week.
“There is more future volatility,” said Bruce Monrad, portfolio manager of Northeast Investors Trust. “This should increase as the Fed starts thinking about raising rates and once it starts to cut.”
These market gyrations could become more routine, which may alarm investors accustomed to more calm on Wall Street.
“Volatility has been very low as the market has generally supported improving earnings,” said Marco Pirondini, head of equities at Amundi US. “But there is still speculation in other corners of the market.”
The VIX, which many investors refer to as Wall Street’s “fear gauge,” now hovers around pre-pandemic levels of February 2020. It has been declining steadily since its peak in March of last year. The VIX is down almost 15% in 2021.
But the VIX climbed more than 10% on Friday morning, and some experts warn summer and the second half of 2021 could be a bit bumpier than the first six months of the year.
Schuringa said he was concerned about “speculative excess” in memes stocks as well as the tech sector and believed a broader market correction could be on the horizon.
It’s also clear, as Friday’s market pullback illustrates, investors are hyper-focused on everything the Fed is saying about interest rates, the downturn, inflation, and the economy. .
“I am concerned about volatility in the second half of the year. There is less room for error,” said Daniela Mardarovici, co-head of US multi-sector fixed income at Macquarie Investment Management. “Even a slight surprise from the Fed could create a retort.”
“We might see some hiccups ahead. But it’s still pretty quiet,” said Bill Sterling, global strategist at GW&K Investment Management.
Investors can also overreact to every statement from members of the Fed. After all, Bullard is just a person, who doesn’t even have the right to vote until next year. Remaining Fed members still don’t think a rate hike is imminent.
“Big changes by the Fed are probably still years away. This volatility may be transient, but it will show up every now and then due to more uncertainty,” said Marvin Loh, senior global macro strategist at State Street Global Markets.