One closely followed
insider indicator from the 2008 financial crisis, the Chicago Board of Exchange
VIX Index – volatility index, or a register of investors’ fears stocks will
drop in the next month – spiked upward 23 percent on Wednesday alone and is at
roughly double the level it’s been for most of the past two years.
In a new-worry-a-day
environment, after US debt downgrades and Federal Reserve interest-rate news
and other economic data, on Wednesday investors were focusing on reports that
France may lose its AAA bond rating. That would be a big deal because France is
the world’s fourth-biggest issuer of government bonds and is being counted on
to put up a lot of money to bail out Spain and Italy and save Europe from a
financial and banking crisis.
Thomas K. Anderson, senior
vice president and chief investment advisor for Boston Private Bank & Trust
Company, which manages nearly $4 billion for clients, said it appears the
fundamental dynamic in the markets now is volatility feeding on volatility.
After last week’s economic
reports suggesting a real risk the U.S. is in or heading towards a double-dip
recession, Anderson said, “The market has had to very rapidly slam on the
brakes with their growth expectations, and that's causing a lot of upset to the
markets, and that gets translated to volatility.’’
Keith Bliss, senior vice
president of Cuttone and Co. on Wall Street the current market is “skittish and
temperamental … It reacts not only to factual aspects and fundamental aspects
but also rumors’’ like talk of France losing its AAA rating.
Jason Weisberg, trader and
vice president with Seaport Securities, said he now thinks Tuesday may have
been an anomalous up day in a bearish period. “The trend is definitely down. We
only had one day’’ of stocks closing up in the last two weeks, “and when you
have nine or eight sessions of straight down, you are going to get like a
dead-cat bounce, so to speak," as Tuesday’s rebound may have been.
When does this get better?
Anderson said “what causes these things to pass is time. So much has happened
so very quickly in this case, where we've had to digest debt ceiling issue
lower economic data the jobs report” and all the European sovereign-debt anxieties,
as well as Tuesday’s big announcements from the Federal Reserve about future
interest-rate and economy-stabilizing plans.
Anderson said he is
stressing to clients this is a much different environment from late 2008, when
the banking system around the world nearly seized up. Now, the world is awash
in surplus cash – especially multinational corporations and big banks -– and
bond markets, money market funds are all trading without liquidity problems.
“I wouldn't call it a
financial crisis,’’ Anderson said. “I would say it's simply high volatility in
the equity markets.”
But with the new trouble
brewing in France, talk of a double dip recession, investors now are wondering:
Where's the good news that turns this market upward?
“We're on a very tenuous
step right now. The Fed is basically out of bullets. It's similar to those
Hollywood movies where you see the guy fire all his bullets -- and now the only
thing he has left to do is throw his gun,” said Bliss.
“As long as the United
States continues to spend more money than it takes in, and until they make a
real concerted effort to contain the deficit, there's not much room for
improvement there,” said Weisberg.
Material from the
Associated Press was used in this report
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