Tuesday's Market Minute: Volatility Preparation

U.S. equity markets took a big hit on Monday as the benchmark S&P 500 fell 3% and indexes saw their worst trading day of 2019 on Monday. The sell-off began last week when President Donald Trump announced new tariffs on Chinese goods. However, market reaction became even more negative when Chinese authorities let the yuan break to its lowest level against the dollar in more than 10 years on Monday. Volatility spiked, with the CBOE Volatility Index (VIX) rising nearly 25% to settle above the 21 level.

Traders may have enjoyed that uncertainty brought opportunity, but investors also became nervous as investments took a major hit. The S&P 500 is still up over 13% this year, and equity futures are higher into Tuesday’s open after China stabilized its currency overnight. Longer-term, the markets in the U.S. are still healthy, but slowing global growth has created uncertainty in the near-term along with a longer theme on a potential Trade War.

Is the recent equity weakness an opportunity, or will it continue to negatively impact stocks? One thing to expect may be elevated volatility for longer-than-expected as the trade skirmish remains in the headlines. Markets may be on a rollercoaster in the near-term unless a trade deal can be worked out sooner than expected, or a potential currency war is averted. Volatility is back and investors should prepare for some uncertainty over the next several months as earnings season wraps up.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.
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