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Be careful what you wish for …
After a grueling few weeks, the markets are catching a breath. The S&P 500 and Dow Jones industrial average each managed to rise on Wednesday for the first time in three sessions, ending down on Tuesday and finishing down again on Wednesday. Investors are hoping the choppy trading continues and is easing fears that the U.S. economy may be slowing down.
The S&P 500 has jumped 15% this year, but the price action so far this year makes it clear stocks still have some distance to travel before they can say they’ve fully regained last year’s losses. That’s been made clear by a few notable market milestones.
One way to prove it is by looking at the performance of the S&P 500 on a year-to-date basis. The index is up 15% so far this year. But look at last year’s performance — the same index was up 28% on the same day back then. So that’s a big drop-off. The chart below shows this on a broader scale — you can see how the market — and the S&P 500 in particular — has become much more volatile this year compared to the last three years.
We’re saying now, the Federal Reserve can keep increasing interest rates. Yes, that’s our way of stating what everyone already knows: the economy is doing better than many believed. So if you’re looking for reasons why this bull market may be coming to an end, as CNNMoney’s Sam Blackman contends, you’d be wise to look at the uptick in volatility. The bear market of the 1990s was born from a sharp rise in volatility. Last year was celebrated as the calmest recovery in decades.
Still, that doesn’t mean the bloom is off the rose. The global economy is strong, we have a tax cut in the works and we’re facing elevated headwinds in the form of rising inflation and rising interest rates. The constant worries will eventually pass. But that won’t be soon enough for a stock market that’s become a casino of sorts. And if that casino starts losing, you can expect volatility to really flare up.
As of now, we’ve put the S&P 500 through four stages of market life. Notice what happened with the first three stages: The market gained and then lost some ground. In the latest stage — the fourth — the stocks won a bit, and then lost again.