Particularly at the speculative end, the trend is pronounced. In the Nasdaq 100, the absolute size of close moves has been around 1.5% per day this month, up or down. That’s three times more than any December since the Christmas rout of 2018 and almost twice the average move last year.

With many forces at play – all the evidence for the fast-spreading omicron Friday variant shows – it’s hard not to notice that volatility is increasing at a time when the promise of endless liquidity is on the rise. the central bank is threatened. The Federal Reserve is stepping up its hawkish stance as the Bank of England has raised interest rates, marking the end of an easing cycle that has supported a 20-month $ 60 trillion rally in global equities.

“The market has spent the past few weeks digesting the likelihood of an accelerated downturn schedule, starting with a contraction of multiple software throughout the earnings season despite strong operating results and relatively strong guidance,” said Renny Zucker, chief investment officer at Capital Y Management. The increasing volatility “reminds us that the Fed’s action over the coming year could have more impact after nearly two years of intrepid trading in the riskiest risky assets.”

Big reversals occurred during the week as investors grappled with whether Fed Chairman Jerome Powell would be able to stage a soft landing by controlling inflation without stifling growth. While investors first took comfort in Powell’s strong endorsement of the economy, calling demand and income strong, a sense of unease later set in with declining long-term Treasury yields. term rekindling concerns about its continued strength.

The Nasdaq 100 jumped 2.4% on Wednesday when the Fed announced an earlier end to its economic stimulus program and signaled two rate hikes next year, to wipe out the entire gain in the next session. All told, the high-tech gauge fell more than 3% in five days for one of the worst weeks of this year.

The smooth ride that has been the signature of this bull market is under threat. The Nasdaq 100 has seen five daily moves of at least 2% over the past three weeks – three up and two down. This corresponded to the total number of comparable wild sessions over the previous five months.

Chunky flip flops reflect a high level of confusion among market players, according to Mike Zigmont, head of research and trading at Harvest Volatility Management.

Contradictory accounts abound. While strategists at Credit Suisse Group AG refer to history and say it is safe to buy stocks during the initial phase of a tightening cycle, their counterparts at Bank of America Corp. warn that this time could be different as inflation is out of control.

“I have no conviction. And I think a lot of investors are like that, “Zigmont said.” They look at the world and they have a vision, but it’s not a powerful vision. Half-heartedly, but with a lot of trend following, you can get that whip. that we saw.”

In the speculative corners of the market, the ride has become more bumpy. In recent weeks, the Russell 2000 small cap has fallen into a 10% correction, newly created stocks have slumped into a 20% bearish drop, and a group of profitless tech companies have plunged nearly 30 %.

While the Russell 3000 Index is up 20% this year, the median stock is down 21% from the recent high. Such a divergence reflects “a historically unprecedented overshoot” in the sale of smaller, more volatile stocks – economically sensitive stocks in particular – which was primarily driven by hedge funds stepping up bearish bets while reducing their exposure to risk, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic.

All of this downtrend likely sets the stage for a rebound in the New Year, when the pandemic ends and the economy continues to grow, Kolanovic said. “This market episode could end with a short squeeze and a cyclical rally at the end of the year and into January,” he wrote in a note on Friday.

Not everyone is convinced that reflation trading will return soon. With the economic trajectory uncertain, investors sought security in companies with stable revenues and dividends. During the week, an MSCI measure of defensive stocks such as utilities and consumer staples climbed 1.2%, compared to a loss of 2.9% for cyclical stocks. The performance gap was the largest since April 2020.

For Ella Hoxha, chief investment officer at Pictet Asset Management, the disagreement reflects a harsh reality: The unorthodox post-pandemic recovery remains murky.

“If you believe we are late in the cycle, you are likely to be more wrong on the Fed’s side by making a policy error or potentially tightening up too much,” she said in a Bloomberg TV interview with Lisa. Abramowicz. “If you are on the side of the early cycle believers, then this is a very typical type of behavior to see as we begin to tighten the policy. This is really where you sit in the conundrum of the debate. . “

This story was posted from an agency feed with no text editing. Only the title has been changed.