Title: Volatility Hits U.S. Stocks as August Shows its Trademark Turbulence
August has arrived, bringing with it its customary volatility to the U.S. stock market, prompting concerns amongst investors. Fundstrat’s Tom Lee warns that the recent slide in the market is as bad as it typically gets during this time of the year. Several factors contribute to this seasonal slump, including low trading volume as summer vacations come to an end.
One of the causes for the current sell-off is the rise in the 10-year Treasury yield, which has increased investor concerns over potential risks associated with higher borrowing costs. Additionally, the U.S. dollar’s strength and a noticeable uptick in the Cboe Volatility Index have further contributed to the market decline.
However, to transform this slide into a serious rout, experts suggest that there would need to be a significant rise in yields or an unforeseen external shock to disrupt the market further. In a glimmer of hope, Lee suggests that stability may soon return as historical data indicates that jumps in bond yields often occur near the end of a selling cycle for stocks.
Despite the current market conditions, Lee highlights that stocks are currently oversold, indicating that they may soon reach a bottom. Typically, during such situations, historical data shows that stocks tend to bounce back within a few days, further easing concerns of a prolonged downturn.
To assess the market’s next trajectory, investors are keeping an eye on significant upcoming events. On August 24, Nvidia Corp. is scheduled to release its second-quarter results, which could provide valuable insights for market participants. Moreover, the following day, August 25, Federal Reserve Chair Jerome Powell is set to speak at the Jackson Hole symposium, making it a crucial date in determining the market’s outlook.
Lee, however, diverges from the optimism seen during last year’s Jackson Hole conference, stating that he does not expect a 20% rally in stocks. Nonetheless, he emphasizes that anything can happen in the market, urging investors to stay vigilant as uncertainties remain.
As August moves forward, investors remain cautious amidst the recent stock market slide, awaiting signals that could point to an end to this period of turbulence. Though the reasons behind the sell-off are apparent, the future remains uncertain. Market participants are keenly observing the upcoming events, especially the release of Nvidia Corp’s quarterly results and Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium, hoping for signs of recovery and stability in the days to come.
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