In addition, as the S&P 500 has moved higher in recent months, equity volatility continued to decline – which can indicate investor confidence or complacency. Also, as August approaches, a month associated with significant travel and vacations, especially in Europe, it has also been a time when several financial crises have occurred including European exchange rates issues in 1993; a Russian debt default in 1998; initial signs of the global financial crisis in 2007 and Eurozone and American credit issues in 2011.
MY TAKE
- Regarding global dynamics – The global economic news flow remains mixed, with the U.S., Japan and Spain providing signs of improving trends; China challenges investors with signs of slowing growth and Egypt and Tunisia remind us that the increased political conflicts that started during the spring of 2011 still confront the region. Also, many investors are focusing on who will be the next U.S. Federal Reserve Chairman (expect an announcement in September) and how stimulus reduction will be managed.
- Regarding August and Volatility – as some investors begin their holiday travels and leave junior traders and money managers to monitor the markets, August may become more vulnerable to market shocks than other months of the year. Markets may move sideways or encounter a jolt of volatility during the next few weeks.