As of yesterday’s close, stocks were down on four of the last five days. The Dow Jones Industrial Average is criss-crossing the 10,000 mark like a drunk trying to walk a straight line for an impatient highway cop. The Standard and Poor’s 500 stock index is down almost 3% over those five days.
So why all the volatility–and especially the downward volatility–all of a sudden?
I don’t think there’s anything major going on with stocks and the economy right now to generate all this action. But sometimes you don’t need one big thing. A lot of little things will do.
So we’ve got
- An over-sold dollar (in other words the U.S. dollar went down too fast) is bouncing back in a bit of a rally. Very seldom do stocks or currencies go up or down in a straight line. A dollar rally is pushing down the prices of commodities, commodity stocks, and overseas stocks
- The U.S. stock market itself is over-bought (in other words stocks went up too fast) and we’re seeing some profit taking set off a bit of a correction.
- The release of U.S. GDP numbers on Thursday is making traders nervous and they’re taking some money off the table. The trade until last week was to sell the dollar; and to buy stocks, bonds, and currency in any country where the economy was recovering more quickly from the global economic slowdown than the United States was. But now there’s a chance that U.S. growth could come in strong enough to close the gap with economies such as Germany and France–and maybe even move ahead. News like that would lead to a reordering to the assumptions of recent trading. Better, I’m sure some traders are thinking right now, to sell out as many positions as possible and see what the geography looks like after Thursday than to risk a surprise.
I’d be surprised if the markets deliver a big move before Thursday. But I’d be even more surprised if we don’t see a lot of volatility in the days ahead.