Volatility in the US market
All the component sectors of the SPDR S&P 500 ETF (SPY) went completely red on September 1 due to the sharp slowdown in China’s manufacturing activity, which was confirmed by the release of PMI (purchasing managers’ index) data for August.
The graph below depicts the performance of gold, the US dollar, and oil, which have been the most volatile during the month of August.
In the above graph, gold is represented by the SPDR Gold Shares ETF (GLD). The US dollar is represented by the WisdomTree Bloomberg US Dollar Bullish ETF (USDU), while oil’s movement is represented by the iPath S&P GSCI Crude Oil TR ETN (OIL).
Oil was the most affected commodity in August. Its movement shows maximum deviation. When oil hit its extreme low, gold resumed its importance as the safe haven. However, the dollar continued to be strong throughout the month. On September 2, oil and the US dollar rose while gold was down. The strong dollar reflects investor confidence, while oil’s uptrend shows the rebound in the energy sector due to positive speculation in regards to employment data.
What made the US sectors rebound within a day?
Uncertainty is looming over the US stock market on grounds of China’s economic slowdown and the speculation regarding the rate hike in the month of September. The US market is looking forward to the employment data report, which will be released on Friday. The market is already speculating about a strong and positive employment report for August. If the report does turn out to be strong, it will certainly boost confidence among investors.
Strengthening economic indicators from the US also imply that negative overseas developments will not affect the US economy much. The situation in regards to the rate hike should be clear after the monetary policy meeting on September 16-17.
In the next article, we’ll look at the situation in the UK market.