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'V' Is for Volatility: Stocks Back in Rally Mode But for How Long?
Posted Nov 02, 2009 11:00am EST by Aaron Task in InvestingAs Wells Capital's Jim Paulsen might say, the very fact so many people were worried about a possible crash Monday is a sign of the prevailing bearish sentiment. The market will continue to climb this proverbial "wall of worry," say bulls like Paulsen.
That may well prove true but the past few weeks have reintroduced a level of volatility largely absent since the July lows. Clearly, the tenor of the market has changed from "one-way bet" to one in which people are questioning the rally's staying power, for a variety of reasons:
- Financial Follies CIT's bankruptcy filing, the 9 banks seized Friday and rising concerns about commercial real estate reinforce what the skeptics (yes, like me) have been saying all along: the financial system remains shaky because the government didn't force banks to deal with their toxic assets.
- Got to Have a J-O-B Another round of "better-than-expected" earnings brought cheer to Wall Street but it's hard to escape the fact much of the profits are coming from cost cutting vs. organic sales. At the end of the day, furloughed employees are also consumers and it's hard for the U.S. economy to maintain any growth (or the housing market to sustain a recovery) with unemployment near 10% - and showing no signs of retreating anytime soon. (Friday's employment report is expected to show the unemployment rate ticking up to 9.8% as another 230,000 jobs were lost in October.)
- Be Careful What You Wish For While many are wringing their hands about the dollar's demise, a number of observers, including The FT's Martin Wolf and NYU's Nouriel Roubini, are warning that a rising dollar will cause major unrest in financial markets, as speculators are using borrowed dollars to invest in riskier assets. Last week provided a sample of why a rising dollar may prove to be a double-edged sword. Similarly, Pimco's Paul McCulley warns that any signs of a V-shaped recovery only brings us closer to action by the Fed, which holds the key to the dollar's near-term fate.
At the risk of repeating myself, the fact there's so much to worry about is probably good news for bulls from a contrarian standpoint. But long-term investors - as well as traders sitting on fat profits - would be wise to heed the market's warning signs.
107 Comments
thomasromancer - Monday November 02, 2009 11:11AM EST
They will be up just long enough for shorts to suck more money out of stupid investors. Hopefully none of our less than stellar institutional investors are not losing people's hard earned money. But you can bet they are.
Terry - Monday November 02, 2009 11:12AM EST
Yes we have the volatility back because they are having trouble pulling the suckers back into the market and it's getting more difficult to hide the lies. I actually make more money with the volatility but would trade it in a NY minute for some honesty in government. They have stolen our children's futures with bad greedy policies and lies. We the PEOPLE can impose term limits by... VOTE OUT the INCUMBENTS in 2010.
raul - Monday November 02, 2009 11:13AM EST
TOO MUCH LIQUIDITY MARKETS WILL RUN HI IN CHRISMAS
jermel - Monday November 02, 2009 11:14AM EST
What kind of stock that have low volatility and why? please educated me.
san - Monday November 02, 2009 11:16AM EST
Commercial real estate is a bloodbath (see Capmark chapter 11) retail lending is a bloodbath (see CIT chapter 11). Private investor has head in the sand! :D
Arisian! - Monday November 02, 2009 11:16AM EST
Sorry for the typo: it was cit group: http://www.bloomberg.com/apps/news?pid=20601014&sid=aGugBgO.xUZw
Yahoo! Finance User - Monday November 02, 2009 11:17AM EST
Cut taxes on corporations. That always leads to higher payrolls
thomasromancer - Monday November 02, 2009 11:19AM EST
They will be up just long enough for shorts to suck more money out of stupid investors. Hopefully none of our less than stellar institutional investors are not losing people's hard earned money. But you can bet they are.
william - Monday November 02, 2009 11:21AM EST
I must say you guys are entertaining, if nothing else.... when are you going stop wishing for the market to fall so you can make up for what you've missed.... the train is left the station and you're left holding your bags with nowhere to go... catch the next train and join the party!!!
Yahoo! Finance User - Monday November 02, 2009 11:23AM EST
I think what the average investor fails to realize is that sellers are the ones that are bullish. In other words, the people you think are the bulls are really the bears. Right now, the accumulation(buyers) vs distribution (sellers) ratio for the NASDAQ is extremely ugly. It's going down no matter what news is released. The Dow's accumulation/distribution is teetering back and forth but I think the NASDAQ will eventually pull it down. Either way, buyers aren't showing much interest in either market. Anybody bullish right now is looking to cash out. If I know there are more buyers than sellers right now, I can assure you they know as well.
BobDiaz - Monday November 02, 2009 11:26AM EST
Sing to the tune of "Clap On, Clap Off": Market Up (Market Up), Market Down (Market Down), THE Market. ;-) We still haven't gotten out of the woods yet, so there's still a strong chance to see the market take a real dive. Invest at your own risk....
Helga - Monday November 02, 2009 11:27AM EST
FEAR: TITANIC FEAR IS EVERYWHERE....EVERYONE IS JUST WAITING FOR THE INEVITABLE..........
Yahoo! Finance User - Monday November 02, 2009 11:29AM EST
High volatility at the top of a run, is weakness, weakness, weakness. Jump ship folks.
Yahoo! Finance User - Monday November 02, 2009 11:31AM EST
Volatility is the way you feel when you know your mother in law is coming over. You know something aint right.
Rey - Monday November 02, 2009 11:31AM EST
Very soon those bears are going to hit the stock market growling all through all stocks // It's just a matter of time
Yahoo! Finance User - Monday November 02, 2009 11:32AM EST
I am not spending. We as the consumers and as the taxpayers have been lied to again and again. I am hanging on okay, but I know I am still poor and have little room for error.
Yahoo! Finance User - Monday November 02, 2009 11:32AM EST
I am not spending. We as the consumers and as the taxpayers have been lied to again and again. I am hanging on okay, but I know I am still poor and have little room for error.
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Arisian! - Monday November 02, 2009 11:10AM EST
Hey, CitiGroup filed for bankruptcy. The worst is over, recovery is on the way!