US stocks end calm period! Analysts: may need to shift to defensive stocks
The recent volatility in the US stock market has ended a long period of historical calm, which may trigger a shift in market sentiment. The past two weeks of fluctuations have ended the S&P 500 index's record of the longest 10-day average intraday volatility of less than 2%, increasing the possibility of a change in market sentiment. Investors' reactions to this market volatility will be closely monitored
According to the Zhitong Finance and Economics APP, the recent volatility in the US stock market has allowed investors to experience the feeling of fluctuations again, ending a long period of historical calm. Based on the analysis by Jason Goepfert, the founder and chief research analyst of SentimenTrader, this volatility may trigger a "shift" in market sentiment.
The S&P 500 index has experienced daily intraday fluctuations of at least 1% for eight consecutive trading days up to last Thursday. The reasons behind this volatility include unwinding of yen carry trades and concerns about a weakening US economy, which have shaken global financial markets over the past two weeks.
In a report on Monday, Goepfert pointed out that over the past 10 trading days, the S&P 500 index has had an average daily maximum fluctuation of at least 2%, making it one of the largest 10-day average intraday fluctuations in the past decade.
The chart below shows the daily maximum fluctuations of the S&P 500 index since 1957. Goepfert stated, "The 2% threshold includes most 'normal' 10-day average intraday fluctuations." Instances where the 10-day fluctuation exceeded 3% have only occurred a few times, and "comprehensive explosive" fluctuations have only occurred three times.
The recent volatility over the past two weeks has also ended the record of the S&P 500 index not reaching a 2% average daily intraday fluctuation for the "longest time in history," increasing the possibility of a shift in market sentiment. He said, "This is the first time in 430 trading days that investors have experienced this 2% intraday fluctuation."
The table below shows how investors have reacted after experiencing intraday fluctuations since 1962.
Typically, a sharp increase in intraday volatility leads to a temporary market pullback, and after several weeks of market fluctuations, the market trend will recover. However, Goepfert pointed out that recent history provides relatively weak support for this argument, especially in the past 25 years. "The surge in intraday volatility in 2011 and 2015 provided good entry points for long-term investors, but in other cases, the risks outweigh the returns."
Goepfert also added that he will closely monitor investors' reaction to this market "panic attack." "If we see the S&P 500 index hitting lower lows, we should remain cautious and may need to shift to defensive stocks."