Stock Market’s Wild Ride Likely To Be With Us For Some Time To Come

Stock Market’s Wild Ride Likely To Be With Us For Some Time To Come

$DIA, $SPY, $QQQ, $VXX

Financial markets have been on a wild ride lately, and the elevated volatility is likely to be with us for some time to come.

The S&P 500 index dove 11% between 17 and 25 August. It then rebounded 6% through 2 August and has slid 3.39% since then.

“The unusual volatility that has taken hold of financial markets in recent weeks, resulting in some impressive moves up in asset prices and many more harrowing declines, will be with us for a while,” Mohamed El-Erian, chief economic adviser to Allianz said Wednesday.

He noted several factors that will keep volatility high, as follows:

1. The emerging world’s spreading economic slowdown is eroding a fundamental underpinning of high and stable asset prices. China reported growth of 7% for the Q-2, down from 7.3% for Y 2014.
2. Asset prices were high and, in some cases, in bubble territory. China is perhaps the best example of this.”The Shanghai Stock Index has dropped 39% since 12 June 12.

In the United States, even after recent declines, Robert Shiller’s cyclically-adjusted P/E Ratio for the S&P 500 Index (CAPE), which accounts for 10 years of earnings, stands at 24.7. That’s not far from its recent high, which trailed only the pre-crash periods of Y’s 1929, 2000 and 2007.

The CAPE ratio has averaged 16.6 since Y 1881, and the market index’s return to that mark would put the S&P 500 at 1,300. That would represent about a 32.6% dive from 1,942.04 Wednesday afternoon. The index hit a record high of 2,134.72 on 20 May and touched a low of 1,867.01 24 August.

There have been sustained periods when the CAPE ratio stayed above historical norms, Prof. Shiller says. “Nobody can really forecast the market accurately. But I think this is a risky time.” He said he has reduced his own stock weighting.

Wednesday US major market indexes closes: DJIA -239.11 at 16253.57, NAS 100 -55.40 at 4756.53, S&P 500 -22.37 at 1947.04

• NAS 100 +0.4% YTD
• Russell 2000 -4.6% YTD
• S&P 500 -5.7% YTD
• DJIA -8.8% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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