Stock Groups

Big swings in the market are more normal than investors might expect


Traders in New York City work at the New York Stock Exchange (NYSE), December 8, 2021.

Brendan McDermid | Reuters

Investors have experienced an emotional rollercoaster ride on the stock market this week, with its wild and unpredictable gyrations.

The market is trying to find a floor, which makes it feel bad. There haven’t been too many times like these, when the market was unable to find a floor. Dow Jones Industrial AverageSwings gut-wrenching 1,000 points in both directionsStocks move up and downMany percentage points can be achieved in one day.

Strategists agree that large moves can be made when indexes have fallen significantly. This is because investors have to adjust to a significant shift in Federal Reserve policy. The Federal Reserve is shifting away from its zero-interest rate policy. Investors have had to reconsider their stock market valuations as a result.

“It’s a tug-of-war and volatility is like blood pressure. Chief investment strategist at CFRA, Sam Stovall said that it’s higher when people are anxious, scared, nervous, and uneasy. High-flying stock names were first to be affected by low interest rates. After that, the selloff spread to growth and tech stocks.

Bespoke claims that the following: S&P 500The intraday range has averaged at least 2.25% for the week. After a late-day reversal, the major averages closed Friday higher and erased week’s losses.

This week: DowIt was the fourth positive week in a row, up 1.3%. The S&P 500 edged up 0.8% to 4,431 to end the week, and the Nasdaq Composite was flat.

The market is rocky

These policy pivots help to achieve this goal. The Fed has made it easy for the economy in the initial part of the cycle. Growth is fast recovering. Earnings are increasing. It’s easy to impose monetary policies and it is very windy,” Barry Knapp of Ironsides Macroeconomics, the director of research. Last year, we experienced that same situation. The Fed was not supposed to leave it that long, as they have not in previous business cycles. This is why there was a violent response.”

Last week, the central bank made markets even more nervousWhen Jerome Powell, the Fed chairman, briefed media. He acknowledged that the Fed might move faster than what the markets expected from it for the year. Instantly, the futures market moved to price in five hikes2022

Hohe, Very lowPlease see the following: Close Levels for the Dow Jones Industrial Average

Chart: Nate Rattner/CNBC

Source: FactSet. Source: FactSet.

Hohe, Very lowPlease see the following: Close Levels for the Dow

Jones Industrial Average

Chart by Nate Rattner/CNBC

Source: FactSet. As of Jan. 28, ‘22.

Hohe, Very lowPlease see the following: Close Levels for the Dow Jones Industrial Average

Chart: Nate Rattner/CNBC

Source: FactSet. Source: FactSet.

Michael Arone is the chief investment strategist for State Street Global Advisors. He said that investors now realize their earnings may not be as strong as they once were.

According to Refinitiv, 77% have beat estimates for fourth-quarter earnings so far. They are also reporting earnings that are 4% higher than expectations. It is well above the 16% average for the previous four quarters. However, it is in line the long-term average.

Arone said, “This will all result in increased market volatility until investors digest that transition period.” The other side is that the economy must continue expanding, and earnings are quite good. It’s sufficient to maintain markets. But, I feel they’re adapting to the change in monetary, fiscal, and earnings policy.”

Investors are more worried about wild swings than the relative calm of last year.  

Stovall said the normal average length of time between declines of 5% or more in the S&P 500 is 104 days, but in 2021, the S&P 500 went for 293 calendar days before falling more than 5% in September 2021. The market pulled back more that 5% in the period September 2020 to November 2020.

The secret behind these movements

Knapp stated that big investors used options and futures when there was low volatility to protect their portfolio. This shift towards a volatile market is causing them to adjust their strategies. It is also contributing to the large bumps in stock markets.

He said that market makers no longer provide protection for the market when there is no long-term volatility.

Knapp indicated that the investors will eventually hedge for greater volatility. The market will slow down but intraday movements may remain elevated.

These big swings are also related to trading at important levels of the market like those that link to moving averages. The S&P 500 fell through its 200-day moving average last Friday, setting it up for Monday’s big drop to 4,222. The S&P bounced off that level, but strategists still look at it as a possible area for the market to test before a bottom is set.

It is considered a key indicator of momentum. If it falls below the 200-day moving average for an extended period, it can indicate more downside. A break above it may signal a larger up movement.

“History is very clear on this point, when you breach the 200-day moving average with conviction, like we did… regardless of what causes that breach, typically what happens is you get a big swoop down 10%, 12%, 15%, which is what we got,” said Darrell Cronk, chief investment officer for wealth and investment management at Wells Fargo.

Cronk claimed in an interview that CNBC has indicated that there is a possibility of a market rally, possibly by 4% to 7.7%. Cronk said, “Often, the real low is set from there. That could be another 10%, 15%” That happened in 2020. It took place in 2018. It took place in 2018. This happened in 2011.

Cronk stated that he expects stocks will rise this year but advised investors to remain cautious.

Rates rising

Stovall stated that a critical metric to monitor is the 10 year Treasury yield. This benchmark influences the mortgage and other lending rates. It was at 1.78 % on Friday, a significant drop from its peak for the week. Investors also consider the yield when valuing stocks.

Stovall said the move higher in the 10-year suggests that price-to-earnings ratio for the S&P 500 has room to move lower.

On a 12-month basis, the price-earnings ratio stands at 21x. This is down from 23.1% at year’s end. This means that investors pay 21 times the earnings last year. As stocks fall in price, the price-earnings relationship also drops.

Stovall looked at what price-earnings look like when 10-year yields are between 1.75% & 2.25%. Stovall found that the highest price-earnings ratio reached 19.7% in 2019, although it was closer to 16% during most of 2019.

He said, “To go from 23.1% down the upper range observation to the lower range observes implies an almost 15% drop.”

Watch out!

Investors will pay close attention to major earnings over the next week. Alphabet, AmazonPlease see the following: Exxon Mobil. Bristol-Myers SquibbAnd Merck report, as do FordAnd General Motors.

Important economic data also exists, including Friday’s January employment report.

It will be fascinating to see whether investors rejoice in any negative economic news next week due to the Fed’s implications. Arone stated that some numbers will soon include omicron effects. “We have data on manufacturing as well as services. There is a lot labor data. These data will begin to decrease and then soften. This will help relieve markets’ concerns that the Fed is too tightening.

Week ahead calendar


Earnings: Cirrus LogicNXP Semiconductor Helmerich & Payne, Cabot, Otis Worldwide, Ryanair

Chicago PMI at 9:45 AM

Mary Daly (San Francisco Fed President) at 11:11 a.m.

12.40 pm. Kansas City Fed President Esther George

Survey of senior loan officers at 2:00 PM


Earnings: Alphabet,Exxon Mobil General Motors, UPS, Starbucks,Advanced Micro Devices, PayPal and Electronic Arts Gilead Sciences, PutleGroup, SiriusXM, Chubb, Stanley Black & Decker, Pitney Bowes, Scotts Miracle-Gro, ManpowerGroup, Super Micro, PerkinElmer,Franklin Resources, Genworth Owens-Illinois Ashland

Vehicle sales monthly

9.45 AM Manufacturing PMI

10:00 am ISM Manufacturing

10:00 am Construction spending

10:00 AM JOLTS


Earnings: Meta Platforms, Qualcomm, Novartis, D.R. Horton, Boston Scientific, Humana, Sony, AbbVie, Thermo Fisher, AmerisourceBergen, Capri Holdings, Marathon Petroleum, Avery Dennison, Johnson Controls, New York Times, Waste Management, Fortune Brands, TrueBlue, Netgear, Qorvo, Cognizant Tech, Suncor Energy,McKesson. Aflac. MetLife. Allstate. Spotify. Emerson Electric. T-Mobile US. Spirit AeroSystems.

8:15 a.m. ADP employment

10:00 a.m. Q4 Housing vacancies


Earnings: Amazon, Merck, Honeywell, Ford, Eli Lilly,Royal Dutch Shell Check Point Software,Becton Dickinson Activision Blizzard, ConocoPhillips, Biogen, Intercontinental Exchange, Snap, Estee Lauder, Lazard, Cardinal Health, Deckers Outdoor, Skechers, News Corp, Prudential Financial, Clorox, Illinois Tool Works, Ralph Lauren, Hain Celestial, Synaptics, Quest Diagnostics, Cummins, Roche Holdings

8:30 a.m. 8:30 a.m.

8:30 a.m. 8:30 a.m.

Services PMI at 9:45 AM

10:00 AM ISM Services

10:00 a.m. Orders from factories

10:00 AM Senate Banking, Housing and Urban Affairs: Sarah Bloom Raskin will be nominated to serve as Fed Vice Chair of Supervision


Earnings: Bristol-Myers Squibb, Sanofi, Regeneron, Air Products, Aon, Eaton, CBOE Global Markets

8.30 a.m. Employment Report