Market Volatility Increases in August

July ended on a high note only to give gains back in the next three trading days.  Analysts scrambled to explain the sharp turn around.   Rather than one catalyst it is likely a combination of data and events.  

The unemployment rate rose to 4.3% in July.  This was the fourth consecutive monthly increase in unemployment and the highest percentage since October of 2021.  While it is still historically low, the trend is headed in the wrong direction.  The July jobs report came in at a tepid 114,000.   This information stoked concerns about a possible recession ahead.  

The Federal Reserve Board voted in its July meeting to keep short term interest rates steady at 5.25 to 5.5%.  It was implied in the press conference that they may begin to reduce rates in September.   Now it seems almost a sure thing that short term rates will be cut when the Board meets in September.  

It is impossible to ignore the political scene.  On July 21 President Biden surprised the country by suspending his campaign for re-election and he endorsed Vice President Harris as the Democrat candidate.   That injected more uncertainty into the presidential election.  While Biden was a “known quantity”, investors are now confronted with a candidate without a track record on policy decisions.  Expect uncertainty to increase and the market to be choppy as the election draws closer.

The stock market is down and bond prices are up.  The yield on the 10 year US Treasury dropped a half a percent in less than two weeks to 3.77%.   This is a yield last seen a year ago.  Crude oil is down and the dollar is down.  

Adding a global element to the situation, the Bank of Japan in a surprise move, raised interest rates and strengthened the yen while central banks the world over are loosening the cost of money.  Japan’s move caused its stock market, the Nikkei 225, to drop over 12% in a day.  This had a ripple effect on investors in the US, some of whom were benefiting from 0% interest in Japan and investing in the US stock market.  

A decline like we are experiencing now is unnerving and investors want to know how long it will last and how far down it will slide.  There are no answers to those questions.  The action appears to be more event driven than based on economic fundamentals.  Event driven moves generally swing back in a relatively short time.  

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.