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Why Equities Are Likely to Be Volatile

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While Russ believes the outlook for US stocks may be muted, he sees opportunities in other parts of the world, particularly in Asia.

After weeks of struggling, global stocks stabilized last week. However, market volatility remains elevated. Looking at realized returns over the past month accessible via Bloomberg data, annualized volatility on the S&P 500 Index is above 30 percent, triple its early August level.

Equities Are Likely to Be Volatile

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Market Realist – Equities are likely to be volatile due to a number of uncertainties.

American stocks saw a sudden spike in volatility (VXX) last month due to a variety of reasons. Investors started aggressively selling risky assets, as they were spooked by the slowdown in China (MCHI).

The graph compares the performance of the S&P 500 Index (IVV), the tech-heavy NASDAQ Composite Index (QQQ), and the Dow Jones Industrial Average (DIA). The indices were more or less flat for the year before the mauling on August 24. The S&P 500 is now down by 4.4% YTD (year-to-date), and the NASDAQ Composite is up 2.2% YTD, despite the correction. The Dow is down by 5.9% YTD.

Since August 24 though, the S&P 500 has recovered, rising by 3.9%. However, markets have been wary since and remain choppy.

[marketrealist-chart id=673036]

Markets were calm for most of the year until the events in China triggered a bout of global equity volatility. The volatility index (or VIX) jumped from ~15 to ~50 within the span of a week. The index remains slightly above 20, which is its long-term average.

However, volatility is likely to stay elevated for a variety of reasons. The market faces a lot of uncertainties, like the timing of the looming rate hike. Read on to find out why US stocks could continue to be choppy.

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