The CBOE S&P 500 Volatility Index (^VIX) has been relatively unchanged in the previous couple of months, but change could be on the horizon. Potential challenges that may disrupt the market include the autoworkers strike, the increase in oil prices, and a possible interest rate hike from the Federal Reserve. Yahoo Finance's Josh Schafer explains the factors that could increase market volatility and whether data that would normally be seen a positive for the markets truly translates to 'good news' or if it should be treated as 'bad news' right now.
SEANA SMITH: We want to talk about the moves or the lack thereof, I guess, that we've seen in volatility, the favorite measure here of volatility. Well, it's been pretty quiet over the past month. The VIX has fallen for most of the year. But many, some believe that it's about to change. Yahoo Finance reporter Josh Schafer is here to tell us more. Josh, what could shake things up here?
JOSH SCHAFER: Yeah, Seana. I mean, there's really quite a few things that could shake things up, right? So you take a look at that VIX chart. You see that it's been largely unchanged for the last couple months. And now we've had a couple of strategists we've spoken to recently say that they think that's going to change for really a long list of headwinds when you think about all the different things we've been talking about.
Today is Fed day. We're talking about if the Fed is going to hike one more time. They're not likely to hike those interest rates today. But remember that November meeting is being heavily debated right now. And so that's something that we're watching.
And then when you think about other headwinds, we've been talking a lot about the auto worker strike, the union strike happening there. We've been talking a lot about oil prices. We've been talking a lot about other things that are all weighing on the market. You can see more on your screen now, when you think about student loan repayments, the possible government shutdown coming on October 1.
So a lot of these things what strategists say-- take for instance, the united auto workers strike, economists don't believe that would be a massive headwind for the economy and for growth. But when you compile that with student loan repayments, when you compile that with a potential government shutdown and people paying more for gas out of pocket, you can see how this all starts to add up and really kind of have a compounding effect.
And that's what people are starting to be worried about. And really predicting a little bit of choppiness in the near term here, not necessarily in the long term. I thought Keith Werner over at True has put, for instance, the government shutdown in great perspective. He said, in the long run, government shutdowns come and go, right? We don't normally see a lot of impact on the stock market in the long run. But in the short term, it almost always provides at least a little bit of choppiness. So we're just thinking, a little bit of chop, but maybe that boat ride gets a little bit smoother once we get out of the fall here maybe out of October.
BRAD SMITH: Josh, what are some of the reasons that investors or even some of the portfolio managers out there are pointing for in terms of positivity in the market?
JOSH SCHAFER: Yeah, Brad. So I mean, you take a look at Bank of America out today, Savita Subramanian and her team, the equity strategy team boosting their year end target for the S&P 500 to 4,600 from 4,300. And a lot of that is because we still haven't seen a run up in some of the stocks outside of that magnificent seven, those mega cap stocks that we talk about a lot.
So they see opportunity in the other S&P 500 index that doesn't account for the weight or the weighted S&P 500 index. So you take out the top heavy part that is run by mega caps. They see opportunity there. Bank of America also still doesn't see a recession, right? So when you think about the base case here, if you're thinking the economy is still going to be strong, then that means corporate profits could still be strong.
Bank of America thinks that corporate profit, the trough in profits was actually last quarter the earnings season we just had. And we're going to see an increase in Q3. Well, what's one of the number one drivers for stocks? It's profits and earnings, right? So that would be beneficial for stocks when you think about it that way.
So there's sort of two sides here. And I think really what the market's trying to figure out-- Julian Emanuel over Evercore put this great-- is good news good news right now or good news, bad news in terms of stocks? And a lot of that has to do with what we hear later today from Jerome Powell and how the Fed is thinking. Is a strong economy a good thing because we're headed for a soft landing, or is a strong economy too strong and that means the Fed needs to hike again? Hopefully we get a little bit of that info today at 2:30, guys. I know I'm going to be listening for it.