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Volatile summer

A lack of long-term solutions to worldwide problems weighs heavily on stocks

Source: Yahoo Finance

Volatile summer
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Stock market investors used to adhere strictly to the rule, "Sell in May and go away." That usually ensured a quiet summer, with relatively low volume and volatility. But in the first two weeks of June, the Dow moved 100 points or more on seven of the 11 trading days. Trading volume on the New York Stock Exchange was over 3.5 billion shares every day, and over 4 billion shares five of the 11 days. That's definitely not a summer slowdown.

Why? Because investors have another rule: "The markets hate uncertainty." And uncertainty has been high, as measured by the Chicago Board of Exchange Volatility Index, or VIX. The VIX jumped more than 18 percent on a single day, June 11, though since then it has floated downward slightly.

Until last summer, the VIX was an esoteric measurement, followed by professionals but mostly unknown to the general public. Journalists started paying attention to the Volatility Index when it spiked to an all-time high of 80 at the height of the banking crisis in October 2008. When the crisis passed, and the VIX settled down to historically normal levels in the teens, so did interest in the index. It spiked again-into the 40s-during the height of the European debt crisis last August. But once again it settled back down, and the first quarter 2012 stock market rally ensued. (The VIX tends to move inversely to the markets.) But from March 15 through the end of May, the VIX doubled, from 13.66 to 27.73. During that period the Dow fell more than 1,000 points.

So will this uncertainty continue through the summer? Rusty Leonard of Stewardship Partners says yes. "Given the inability of policymakers to craft a comprehensive, credible solution to the world's most pressing economic problems, higher than normal volatility is something investors are going to have to get used to," he said. The Greek elections and the $125 billion Spanish bank bailout drove down the VIX from its early June peak to a level that is not much higher than historic norms and, indeed, the market rebounded in the first two weeks of June, gaining 600 points. Leonard warned, however, that "short term fixes cause volatility to fall for a while, but it will not be long until the next crisis sends it higher again."

Wiped outWiped out Are you feeling poorer these days? If so, it's because you probably ar

Are you feeling poorer these days? If so, it's because you probably are.

On June 11 the Federal Reserve released a report saying the financial crisis wiped out almost 39 percent of the median U.S. household net worth from 2007 to 2010. The main reason for the decline was the collapse in home prices. Median household net worth was $126,400 in 2007, but by 2010 it had declined to $77,300. (The median is the point where half had more and half had less.)

Interestingly, neither presidential candidate has attempted to exploit the data, partly because the data do not fall neatly into four-year presidential cycles: Two of the years belong to President Bush and two to President Obama. Also, Mitt Romney, who could likely make the most political hay from the report, has a personal net worth of $250 million-making him a less-than-perfect spokesman for lamenting declining family fortunes.

The net effect: silence from both camps. Obama did not formally comment on the report. Romney, when asked directly about the report by Fox News, said only that "people are having hard times in this country" and that Obama should "go out and talk to people in the country and find out what's happening." -Warren Cole Smith

Warren Cole Smith

Warren is the host of WORLD Radio’s Listening In. He previously served as WORLD’s vice president and associate publisher. He currently serves as president of MinistryWatch and has written or co-written several books, including Restoring All Things: God's Audacious Plan To Change the World Through Everyday People. Warren resides in Charlotte, N.C.



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