Insights & Advice


Volatility and Volume Increase

There was nothing boring about the world’s stock market this week. On any given day, you could find at least one market that was up or down at least 1% or more. Volume here at home has also picked up. I expect more of the same as investors continue to work off some of the excess gains of the past few months.

There are certainly a number of good reasons for the market’s volatility. The on-going crisis in Greece, which is now starting to spread to Portugal and even Spain, has investors spooked. Various credit agencies down graded all three countries’ debt this week.

Fears of default (in the case of Greece) sent the Euro to the lows of the year against the dollar and bourses around the world rose and fell on every new development in this multi-month long saga. The S&P 500 lost over 2% on the credit downgrade earlier in the week. The latest development in this Greek tragedy has the beleaguered country receiving a bailout in exchange for cutting state wages and overhauling a bloated pension system. These new austerity measures are expected to reduce the government deficit by $30 billion.

As if that wasn’t enough, Goldman Sachs remains a thorn in the side of the markets. The day-long grilling of Goldman executives ignited worries that a banking witch hunt was developing in Washington. Fears that all the big banks would be hauled before Congress one by one and burned at the stake were fanned to a fever pitch on Friday. That’s when the markets learned that prosecutors are now opening a criminal probe of Goldman Sachs. A civil case is one thing. You can plead no contest, pay a fine and that’s the end of it. Getting nailed for securities fraud could spell jail time, and that shakes up Wall Street.

Of course, the headlines don’t make it a fact. There are plenty of criminal investigations that go nowhere, and this could well be one of them. Yet, the markets sell first and ask questions later whenever there is bad news of this sort.

So after opening at 1217 on Monday, the S&P 500 Index continually lost ground all week as bad news outweighed another batch of good earnings numbers from the majority of reporting companies and a respectable 3.2 % gain in first quarter GDP. This has been the third straight month of gains in the markets. Weekly gains in the averages have almost come to be expected and that is a sign of too much complacency. A week or two of consolidation would actually be a good thing for stocks. So what happens next?

This weekend we should hear some good news out of Europe with an agreement on a Greek bailout in place by Monday’s opening. That should cheer the markets. Earnings are still coming in on or above target estimates, the recovery is picking up speed, and at some point even the stock price of Goldman Sachs will be low enough to attract buyers. In the meantime, stay the course.

Posted in At the Market, The Retired Advisor