For several weeks, a rotation has been underway in the U.S. market, with money moving away from some...
How Afraid Is the Market?
03/13/2015 12:01 am EST
The very strong jobs report has increased fears about a Fed rate hike and MoneyShow's Jim Jubak shares two scenarios for a market correction.
For the week ahead, well, we're going to figure out how afraid the market is of the Federal Reserve and the beginning of interest rate hikes that, really, at the end of, well, when we got the February jobs report and it was stronger than expected, the market is starting to sell off on the theory that instead of raising interest rates for the first time in September, the Fed was going to raise it in June.
Now, the question of this is how afraid the market is. If the market is just a little afraid and that we're basically talking about a swing back to where we were say in January, we're looking at just, again, sort of range trade in March that things like the (VIX) go from 13 to 20 and that means the higher the number on the VIX, the more fear there is in the market, and that's about the normal range.
We were at 13 on March 2. If we move to 20, that would be a normal swing. We're back to 16.5 or so on the 10th of March. That's about a 28% move about halfway through this so that's one possibility. Remember, we've been talking almost for the last six months about a consensus that has moved between, well, it's going to be June, it's going to be September, so, logically, that's all the swing should be. Logic doesn't necessarily rule the market.
There's a good possibility the market is really more afraid of the Fed than it was earlier and that as evidence mounts, at least in Wall Street's mind, that it's really going to be June as opposed to September, we might see a swing above that.
One of the things that you need to look at is are we going to stay locked into this trading range that really keeps the S&P on average around even for the year but moves the index from say 3% above where we ended 2014 to 3% to 4% to 5% below or are we going to get some bigger move.
That's what we're looking for.
It looks like we're going to get some kind of correction in March. The question is exactly how big it's going to be and that's what we're waiting to see for the week ahead.
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