Resona International Management: Equity market volatility has increased as investors ask where upward impetus will come from after QE.
Resona International Management have warned clients that volatility in the equity markets is set to continue as they approach a crossroads with little or no clue as to what will provide impetus for further gains once the Federal Reserve ends its bond-buying program next month.
The Fed is poised to bring to an end its controversial quantitative easing program almost 6 years since it began buying up US government bonds and mortgage-backed securities in a bid to keep long-term interest rates low and, in doing so, help encourage the borrowing and spending needed to fuel an economic recovery.
One Resona International Management analyst said, “The last few years in stocks have been characterized by a steady grind higher and, certainly for most of 2014, indexes have traded in a very narrow range but now, with QE coming to an end and talk of interest rate hikes from the Fed, investors are wondering if now is a good time to take risk off the table and park some money on the sidelines. People are asking what’s going to push stocks higher when the economy isn’t going anywhere near as strongly as it needs to in order to justify values as they stand now.”
In the last two weeks, the Dow Jones Industrial Average has had two 200+ point falls driven chiefly by weaker economic data out of both the US and Europe but also by continuing hawkish rhetoric emerging from various voting members of the Federal Open Markets Committee (FOMC) which decides on Federal Reserve monetary policy.
“The Fed is testing the water to see if the economy and, indeed, the market can tolerate a higher Fed funds rate but without an uptick in sentiment, confidence or growth, the verdict from the market will likely be a resounding ‘No’”,” concluded the Resona International Management analyst.
