Today’s Wild Market Volatility Is Bad Signal for Future

Monday’s brief turnaround only shows that turbulence will keep doing harm, says Bespoke.

Volatility rules this morning, as the market is busily erasing Monday’s stunning rebound from the January slump. If history is any guide, lower markets and more trading tumult lie ahead.

Although the S&P 500 and the tech-heavy Nasdaq Composite came back from 3.5% and 4.4% respective slides yesterday and finished ahead 0.28% and 0.63%, the indexes returned to their losing ways in early Tuesday trading, down almost 2.4% and 3%, respectively.

Meanwhile volatility has rocketed, with the CBOE Volatility Index, or VIX, reaching 33.7 today—that’s way up from the mid-teens mark that prevailed at the year’s start, a level that’s in line with the gauge’s average of around 15.

Volatility is getting intense, and yesterday’s drama doesn’t prove there’s underlying strength in the market. Quit the opposite, studies show.

Monday had a surge in trading volume unseen since the scary days of March 2020, when the pandemic first hit, according to Bespoke Investment Group. Volume in the S&P 500-tracking exchange traded fund (ETF) SPDR 500 was 252 million shares on Monday, the highest level of daily volume since those dark days almost two years ago, when the market skidded more than 25%.

Such big swings lately signal that tough times will persist for stocks, Bespoke indicated. Yesterday’s Nasdaq snapback was only the sixth time since 1988 when such a turnaround occurred, Bespoke said. In the previous instances, the index was down one month later, by an average 5.6%. Three months since the reversal, the Nasdaq was only positive for a single trading session and the average drop was 8%.