Stock Market Volatility Will Persist – For Now
It’s not just the Fed. Other structural factors are in play that have the strong potential to roil equities.
The roller-coaster ride isn’t over.
Photographer: Michael Nagle/Bloomberg
After a relatively smooth ascent in valuations and profits since March 2020, stocks had a bumpy and unsettling first month of 2022. In addition to the sharp drop in markets in January, the dizzying intraday volatility added uncertainty and contributed to an unsettled feeling about the future, and not just because of the marked change in the policy stance of the Federal Reserve. The volatility is likely to stick around, at least for a while.
Investors and traders in the past few weeks have radically shifted their view of the 2022 policy stance of the Fed, the world’s most powerful central bank. Initiated by Chair Jerome Powell’s belated pivot at the end of November away from the “transitory” characterization of inflation, market expectations for interest rate increases have moved rapidly to incorporate five hikes this year alone. The possibility of starting the raising cycle with a 50-basis-point move is no longer out of the question.