Tags: Stock | volatility | seen | rising

Stock Volatility Seen Rising in Coming Sessions

Friday, 28 Feb 2014 06:34 AM

By Dan Weil

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While last year's torrid stock-market rally transpired amid very smooth trading, many experts expect more volatility this year.

Indeed, volatility spiked in January thanks to emerging market turmoil and tumbling U.S. stock prices. The CBOE Volatility Index (VIX) peaked at 21.48 Feb. 3. It has since fallen back to 14.04, but many financial market participants expect it to rise.

The index measures expectations for fluctuation in the Standard & Poor's 500 Index.

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"Given the prevailing economic uncertainty, the likelihood of continued Fed tapering and a still-fragile environment in emerging markets, we expect the relatively higher levels of equity market volatility to persist,” Russ Koesterich, global chief investment strategist at Blackrock, wrote in a recent commentary obtained by MarketWatch.

"To be clear, we are not forecasting unusually high levels of volatility. Rather, we anticipate volatility will continue to rise from what have been unusually low levels." Koesterich expects the VIX to return toward its long-term average of around 20.

Other factors that could boost volatility are China's economic deceleration and the potential for more trouble in emerging markets, strategists tell MarketWatch.

Gary Thayer, chief macro strategist at Wells Fargo Advisors, sees the potential for heightened volatility in stocks too.

"Investors now appear to favor defensive sectors rather than cyclical sectors," he writes in Barron's. "This suggests that investors are cautious. Consequently, sentiment is still probably fragile, and the risk of an increase in market volatility persists."

David Bianco, chief U.S. equity strategist at Deutsche Bank, also warns that volatility will return to the stock market this year after virtually a one-way market in 2013.

"The point is, we have a normalizing economy, [we're] returning to normalized earnings growth and we've returned to normal valuations," Bianco said in a briefing to journalists, CNBC reported.

"That's not a big deal or a reason to be bearish. But I think you should be mindful that when you've got normal earnings growth and normal valuations, you're probably going to get normal volatility, and normal volatility is higher than what we've seen in 2013."

Bianco believes the S&P 500 may well break 2,000 this year and then come back down to 1,850. The S&P 500 rose 9.13 points, or 0.5 percent, to 1,854.29. Its previous record high close was 1,848.38, set on Jan. 15.

Others anticipate increased volatility in 2014 too. "Although history doesn't demand that we have a 10 percent correction this year, I wouldn't be surprised to see one," Norman Conley, chief investment officer at JAG Capital Management in St. Louis, told the St. Louis Post-Dispatch.

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