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 Concern about the Federal Reserve's path of rate increases and the
soaring U.S. dollar have resulted in big swings in the S&P 500 on a
daily basis, even though overall expectations for volatility remain
low.
Bolstered by reduced expectations of approaching rate hikes, the S&P
500 <.SPX> and Nasdaq Composite <.IXIC> came close to record closing
highs on Friday.
"Any piece of economic data that speaks to the pace of job creation
or inflation will be watched very closely. That's the driver," said
Art Hogan, chief market strategist at Wunderlich Securities in New
York.
That makes economic updates due in the next few days all the more
important, strategists say, including February new home sales on
Tuesday and February durable goods orders on Wednesday.
With Wall Street bracing for the first Fed rate hike since 2006, the
S&P 500 on average this year has fluctuated 24 points per session,
its most volatile since December 2011, according to Thomson Reuters
data.
After U.S. consumer prices in January fell their furthest in six
years due to low gasoline prices, Tuesday's February Consumer Price
Index is expected to be up 0.2 percent, according to a Reuters poll
<USCPI=ECI>.
The U.S. economy's growth prospects and the outlook for rate hikes
have also been clouded by the strong dollar. The greenback's 20
percent surge over a year has caused about 50 companies to reduce
earnings expectations for the first quarter, and more could be on
the way.
On Friday, the dollar <.DXY> was off 1.5 percent against a basket of
major currencies and registered its biggest weekly decline since
2011.
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Expectations for first-quarter earnings are already off to a poor
start. For every company that has pre-announced earnings above Wall
Street’s expectations, 5.5 others have pre-announced below
expectations, according to Thomson Reuters data. That's the worst
ratio since the same point of time in the first quarter of 2014,
when the ratio was 7.2 to 1.
Investors also worry about falling oil prices <LCOc1> <CLc1> and how
much of the recent drop is attributable to global economic weakness
as opposed to oversupply. Energy companies account for 8 percent of
the earnings of S&P 500 companies but volatile crude prices
reverberate across the economy.
Some investors worry that consumers are not spending money freed up
by lower gasoline prices on more goods and services.
"They’re saving it or paying down debt,” said Bucky Hellwig, senior
vice president at BB&T Wealth Management in Birmingham, Alabama.
"That’s why everyone is nervous."
(Reporting by Noel Randewich; Editing by James Dalgleish)
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