Sunday, August 20, 2017

Volatility Increasing, Fed Balance Sheet Reduction Weighs - Stock Market Commentary 08-20-17

We are seeing increasing volatility in the U.S. stock market recently, and it seems like the straight upward shot in equities has ended. We are reverting to a more normal market environment, in my view. I think in spite of the attribution of the increased volatility to geopolitical events such as the war of words with North Korea or domestic issues such as the continued lack of follow-through on some of Trump's promised business-friendly reforms, the real catalyst that is putting pressure on the market is the planned balance sheet reduction by the Fed. 

Increasing S&P volatility:



I expect this planned reduction in liquidity to create increasing volatility in the coming weeks, and if it is announced as planned, perhaps even more in the weeks after that. I would be very cautious regarding stocks and and real estate at this time. Let's see what the Fed heads say on September 20!

VIX spikes coming back: