Market’s Quirky Moves Keep Volatility at Bay

Last updated: June 28, 2024

stocks_graphWednesday’s stock market saw modest gains, but beneath the surface, there was a flurry of activity. While big-name energy and financial stocks stumbled, the consumer discretionary sector, led by Amazon (AMZN) and Tesla (TSLA), soared.

This back-and-forth is a key theme. When AI stocks aren’t dominating, other sectors keep the S&P 500 steady, maintaining low volatility.

Take Nvidia’s recent dip. The AI business dropped 13% from its peak, causing social media panic. Yet, during this downturn, the Dow Jones Industrial Average rallied, with energy and biotech stocks showing strength.

The market is currently a seesaw of activity, with sectors moving independently. “This is a generationally weird US stock market,” said Luke Kawa of Sherwood Media, noting how the S&P 500 gained 0.4% despite 384 of its components falling—a first since 1996.

Historically, bull markets often see gains concentrated in a few stocks. When these leaders stumble, other sectors rise, keeping overall volatility low. Eventually, all sectors might sell off together, signaling a bear market.

Kawa highlights this phenomenon, stating, “Different major groups within the US stock market have been marching to the beat of their own drummers recently, and this dynamic has helped keep the stock market from lurching violently to the downside.”

This trend is visible even within the tech sector. For example, when Microsoft and Alphabet rise, Nvidia and Apple might fall. Such low correlation between stock movements keeps index volatility in check.

However, Kawa warns of a potential “correlated shock” affecting major companies that dominate US and global equity indices. While this risk looms, current trends could persist, as seen during the 90s internet bubble.

BofA analysts echo this sentiment, suggesting the current low-correlation environment might continue for years. “Multiple years of decorrelation in the 90s as the internet bubble developed suggests that persistence of today’s regime remains a risk,” they noted.

Kawa concludes with a metaphor: “Just because we’re in uncharted waters doesn’t mean we’re heading for a waterfall. It could end up being a lazy river.”

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Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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