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Lower market volatility preceded midterm elections.

Lower market volatility preceded midterm elections.

November 08, 2022
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The stock market had a down week last week, following two previous weeks of strong gains. Large growth stocks led the decline after the release of some weak earnings reports and a Federal Reserve meeting in which Chairman Powell reiterated his message that he will continue to raise interest rates to stop inflation.

These events certainly disappointed the stock market, but interestingly, stock market volatility actually declined. Market volatility is often measured by the VIX (ticker symbol and the popular name for the Chicago Board Options Exchange's CBOE Volatility Index) which is closely watched by many investors and has been very elevated for most of the year. A high VIX is associated with large price swings due to quickly changing market conditions and investor uncertainty. The VIX has been dropping since Oct 11th and even with the negative news last week it continued to decline. This could be a sign that investors are adjusting to the new normal and that Oct 11th may have been the bottom of the bear market.

It’s also probable that the end of the 2022 election campaign season is allowing markets to settle down. We know that politicians running for office are good at stirring things up and the market never likes that type of uncertainty. Once the election is behind us, no matter the results, investors will quickly refocus on other fundamental economic issues that aren’t so emotionally charged.

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Photograph by: Visuals on Unsplash

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