If the choppy markets of late have you reaching for the Dramamine, you're not alone in feeling a bit seasick from the sudden rush of volatility. That's because 15 of 19 trading days this month have seen the Dow Jones Industrial Average (^DJI) move up or down by at least 100 points. According to the Wall Street Journal's Morning Moneybeat blog, we haven't seen this type of trading since October of 2011. And pros like Hank Smith, the chief investment officer at Haverford, say it's not going away anytime soon.
"We think we are going to have this volatility for the rest of the year based upon the uncertainties of Fed policies," he says in the attached video, highlighting both the timing and scope of the reduction of QE3, as well as the drama surrounding who is going to be the next Fed chairman.
"It's very different than the preceding six months," he says, "but it is almost back to the normal volatility that we've seen in the preceding three years."
While some market analysts have flagged the fact that trading volume on down days has been substantially higher than on the up days, Smith is more sanguine about where we are headed.
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"I think the last three days, including today, is a demonstration that the bull market is still alive," he says, adding that he thinks the trend of economic data has been more positive, "but the biggest driver to this market is in sentiment and psychology."
Again, he takes exception to a commonly espoused concern that is being voiced within a data dependent marketplace that predicts one good jobs report is all it will take to convince traders that the Fed will begin to taper its bond buying sooner rather than later, thereby disappointing bond AND stock markets.
From Smith's standpoint, this so-called good-is-bad logic is short-sighted at best as he thinks such a reaction "would only be temporary" noting that ultimately he believes that "good (economic data/news) is good."
"Getting off these emergency low rates will be a positive for the markets," he conclude, "but it will create volatility, there's no question about that."
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