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How Volatility Is Affecting Market Movement

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Market volatility

In the above part of this series, we discussed that the broader market S&P 500 Index (SPY) showed a huge correction in March 2018. The CBOE Volatility Index, which measures the volatility of the S&P 500 Index, rose significantly during days that the index showed strong corrections.

The CBOE Volatility Index rose 0.6% in March 2018. The index rose 13.2% on March 1, 2018, while the S&P 500 Index fell 1.4% after President Trump announced that the US will impose a 10% import tariff on aluminum and a 25% import tariff on steel.

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Major ETFs such as the SPDR Dow Jones Industrial Average ETF (DIA), the SPDR S&P 500 ETF (SPY), and the PowerShares QQQ ETF (QQQ) fell 1.7%, 1.3%, and 1.3%, respectively, on that day. Earlier, we also discussed that the market volatility has an inverse relationship with the market movement. The sudden rise in the volatility index is signaling that there is some uncertainty in the equity market.

However, after that, the volatility index gradually fell down as the index recovered some points. The volatility index is also known as the fear index, and it’s an important measure to understand market behavior.

In the next part of this series, we’ll analyze the performance of the consumer staples sector.

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