During a stretch of six trading sessions, from August 20th to the 28th inclusive, the average daily swing in the Dow Jones Industrial Average (high-low) was 607.59 points, 1089.42 points on the 24th alone. That’s not just volatility, that’s Don Cherry’s wardrobe.
One is tempted to believe what we are told: that the aforementioned volatility is wholly attributable to the burst in China’s bubble, the most closely followed China-based ETF lost an astounding 56% of its value from April 28th to August 24th.
Of course, that’s too simple and explanation. Who didn’t think the Shanghai market was overvalued? By extension, who couldn’t gauge the U.S. market’s vulnerability to it? The truth is that most investors acknowledged overvaluation in U.S. markets, thus making them more sensitive to bad news than they might ordinarily be. Market tend to climb in more orderly fashion than they decline, and when they do decline we often see the type of volatility that has been in evidence during the latter days of August. And while we are not yet a Bull in China’s shop, we are keen on the idea that Chinese markets have oversold.
We believe it likely that, owning to declining oil, the Canadian economy is in or teetering on the brink of recession, and the trend in the $CAD is still down. On the other hand, when the turnaround in the fortunes of the oil patch does, it will provide opportunities for investors scarcely available elsewhere.
Whether the U.S. Federal Reserve increases interest rates in September, October, or not at all in 2015 is the subject of heated debate, and the lack of consensus is expected to fuel market volatility over the short term.