The Dow is now on a five-day losing streak, falling nearly 3.5% this week. That’s the worst weekly pullback since late January.
“There is more future volatility ahead,” said Bruce Monrad, portfolio manager of Northeast Investors Trust. “It should increase as the Fed starts to think about raising rates and once it starts tapering.”
These market gyrations could become more routine, which may alarm investors who have gotten used to more calm on Wall Street.
“Volatility has been very low because the market overall supported by improving earnings,” said Marco Pirondini, head of equity at Amundi US. “But there is always some speculation in other corners of the market.”
The VIX, which many investors refer to as Wall Street’s “fear gauge,” is now hovering around the pre-pandemic levels of February 2020. It’s been steadily declining since peaking in March of last year. The VIX has fallen nearly 15% in 2021.
But the VIX spiked about 10% Friday, and some experts warn that the summer and latter half of 2021 could be a bit bumpier than the first six months of the year.
Schuringa said he’s worried about the “speculative excess” in the meme stocks as well as in the tech sector and thinks that a broader market correction could be on the horizon.
It’s also clear, as Friday’s market pullback illustrates, that investors are hyperfocused on every little thing the Fed says about interest rates, tapering, inflation and the economy.
“I’m concerned about volatility in the second half of year. There is less room for error,” said Daniela Mardarovici, co-head of US multisector fixed income at Macquarie Investment Management. “Even a mild surprise from the Fed could create an aftershock.”
“We could see some hiccups ahead. But it’s still pretty calm,” said Bill Sterling, global strategist with GW&K Investment Management.
Investors may also be overreacting to every utterance by Fed members. After all, Bullard is just one person, who doesn’t even have a vote until next year. The remaining Fed members still don’t think a rate hike is imminent.
“Big changes from the Fed are likely still years away. This volatility might be transitory but it will rear its head every now and then because of more uncertainty,” said Marvin Loh, senior global macro strategist with State Street Global Markets.