|
 Still, the bears may have to wait a while to call the start of a
correction.
Uncertainly took over Wall Street Thursday as investors fled stocks,
giving the S&P 500 its first decline of more than 1 percent in three
months. The VIX posted its biggest one-day percentage increase since
April 2013, surging 32 percent. Volume jumped 20 percent compared to
the average so far this month.
Friday's rebound, however, suggests that the market's attention to
Ukraine and Gaza will be limited unless a wider conflict erupts,
with investors instead keeping their focus on earnings.
"It’s one thing to add to the geopolitical risk premium - that’s how
you get a 1 percent move," said George Pearkes, an analyst at
research firm Bespoke Investment Group in Harrison, New York.
"But it’s another thing to say we’re going to be in a bear market
because of some conflict between the United States and Russia, or
the West and Russia. For that to happen, you’d have to see some
trade war but we don’t see that as likely."
World leaders demanded a credible investigation into how a Malaysian
airliner with 298 people on board was shot down over eastern
Ukraine. Meanwhile, Gaza's Palestinians hunkered down as Hamas
militants urged defiance after Israel sent forces into the strip
after days of cross-border fire.
Investors looking for the market to keep rising should also temper
expectations. Bespoke looked at 22 past instances when the VIX
jumped by 30 percent or more and found that one week after such a
move, the S&P 500 is up, on average, about 0.77 percent.
[to top of second column] |
Most of that move comes on the following day, though, when the S&P
rises an average of 0.73 percent. The previous large VIX jump, of
more than 40 percent, was in April 2013 after a bombing at the
finish line of the Boston Marathon.
The weekly gains tend to be even more muted in the instances when a
30 percent gain comes when the VIX itself is below 20 - just a 0.51
percent rise.
That makes Friday's rebound significant - a 1 percent rise after a
1.2 percent drop suggests investors have almost completely shrugged
off the news. To some, that's a worry about the market's current
mindset.
"I guess my explanation would be the (Federal Reserve) has created a
bubble," said Michael O’Rourke, chief market strategist at
JonesTrading in Greenwich, Connecticut.
"There's nothing out there right now indicating the Fed’s going to
change anything and that’s why, when we have these dips, there's
always buyers around."
(Reporting by Rodrigo Campos; Editing by Nick Zieminski)
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