One explanation behind the overall reduction in equity market volatility has been the general decline in the volatility of the overall economy. Recessions are now far less frequent than used to be and have recently been far less severe. As we near a turning point in the economy, and a potential end to the current Fed interest rate campaign, the volume level has been turned up on the economic debate. As economic uncertainty increases it could very well increase equity market volatility.
The only economic certainties at this point seems to be uncertainty. A sampling of Internet-based opinion follows:
Daniel Gross at Slate.com asks the question: Are we heading into a recession? He looks at the opinion of those forecasters he calls the “Gloom & Doom caucus.” Gross cautions us to take any economic forecast with a large grain of salt.
Eddy Elfenbein at Crossing Wall Street looks through the “blurry mirror” that is government economic statistics, specifically GDP revisions.
James Picerno at the Capital Spectator looks at the ominous effects that higher inflation numbers may have on the Fed’s plan for an orderly economic slowdown.
Ticker Sense notes an uptick in searches for the term, “stagflation.” Um, that can’t be a good thing, can it?
Kim Clark at usnews.com notes the pinch that higher inflation may have on (record) corporate profit margins.
While it is not strictly an economic indicator, Barry Ritholtz notes an ominous turn down in the transportation stocks.
In a prior post we noted the less than positive signal that the yield curve is emitting.
Increasing equity market volatility would be distressing to a large swath of longer term investors. However for a certain segment of investors who thrive on volatility, like certain hedge funds and volatility traders like Adam Warner, this could very well be a boon.