Market Volatility Will Stay Elevated on Renewed Inflation Fears
A slew of issues are driving market uncertainty and confusion, but that will provide aggressive traders with many new opportunities.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Inflation worries triggered an unpleasant market selloff on Tuesday, but the action is stabilizing Wednesday morning as market participants contemplate whether the bond market had already anticipated the bad news.
Bonds have been in a steady downtrend since the Fed cut interest rates by a half point on September 19, 2024. It was the first rate cut in four years, but yields on the 10-year bond have increased by more than 1%, and rates are at their highest levels since the fall of 2023.
Not only have rates been trending higher, but the market has steadily been giving up on hopes of Fed rate cuts in 2025. It is now anticipated that there may only be one cut around mid-year versus expectations of as many as five cuts a few months ago.
The bond market has been anticipating sticky inflation for a while, but the stock market has embraced the belief that strong economic growth would offset inflationary concerns. Stocks have held up based on optimism about Trump's policies and generally good economic conditions.
What is making the market unstable is a high level of uncertainty as it awaits the Trump inauguration on January 20. There is no clarity about tariffs, growth, monetary policy, inflation, taxes, and the impact of massive deportation of illegal immigrants.
Another complexity is the unusual market volume. The Nasdaq had record volume on Tuesday, due primarily to trading in very low-priced stocks. XTI Aerospace, which closed at six cents on Wednesday, traded around 3 billion shares.
There has been strong speculation in some lower-priced stocks for a few weeks now, but now it has deteriorated to some of the most questionable stocks in the market. While this sort of action never lasts long and always ends badly, it illustrates that there is speculative action out there. I've been looking for it to flow into better-quality small-caps, but so far, there have been few signs of that.
Another problem for speculative traders Wednesday morning is that quantum computing stocks are blowing up after the CEO Jensen Huang of Nvidia NVDA said the technology was still 20 years away from being commercially viable.
All of these issues suggest that we will see elevated volatility for a while, which isn't a bad thing for active traders with short time frames.
At the time of publication, Rev Shark was long NVDA.
