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Global Market Volatility Rises, Geopolitical Risks Are Back

Ricky Cove - Author

Apr. 16 2018, Updated 9:26 a.m. ET

Stock market volatility 

We’re headed for a dramatic opening this week. US markets will likely react to the US, the United Kingdom, and France conducting missile attacks on Syria over the weekend. The US-led attack was launched with over 100 missiles targeting chemical weapons facilities in Syria. Over the weekend, comments from both sides indicated that this would be a one-off attack, which calmed fears of tensions escalating. There are some reports that the US could press for more sanctions on Russia this week, which could increase the volatility in global indexes. Apart from geopolitical issues, President Trump’s legal issues and China’s trade issues could also keep investors away from the markets. Markets are hoping for a solid earnings season, which kicked off last week.

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US market’s performance

US indexes made a smart recovery in the first four sessions last week. However, investors’ anxiety about possible missile strikes and weak guidance from financial companies led to a sell-off on Friday. The S&P 500 Index (SPY) rebounded 2% last week despite a decline in the financial (XLF) sector. Deutsche Bank’s Dogs of the Dow ETN (DOD) and the PowerShares QQQ trust series (QQQ) gained 1.8% and 2.8%, respectively. The Asian session started on a strong note on April 16. However, the excitement ended quickly. European markets opened on a mixed note. US futures are pointing to a stable opening, but there are many uncertainties about the indexes rallying higher. The best hope is that the indexes don’t slide more.

Bulls bet on more volatility

The CBOE Volatility Index, or VIX, measures investors’ expectations for future volatility. The index is tracked by ETFs. The iPath S&P 500 VIX short-term futures (VXX) depreciated 19% for the week ending April 13 and closed at 17.41. According to the latest Commitment of Traders report released by the Commodity Futures Trading Commission, large speculators including hedge funds, have increased their long volatility positions from 79,102 contracts to 92,900 contracts. If the current geopolitical issues escalate more, we can expect increased volatility in the indexes this week.

Next, we’ll discuss what lies ahead for the S&P 500 Index this week.


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