Volatility Returns: Central Bank Moves Jolt Markets

Last week was a rollercoaster for equity markets, frustrating investors as major U.S. indices swung wildly. The most significant shifts occurred on Thursday and Friday. Thursday’s sharp decline was attributed to European Central Bank (ECB) President Mario Draghi, whose comments failed to meet investors’ expectations for additional central bank stimulus. In contrast, Friday brought a rally, fueled by a stronger-than-expected U.S. jobs report, rising expectations of a Federal Reserve rate hike in December (which, oddly, is now seen as good news), and seemingly contradictory remarks from Draghi himself.

Just a day after disappointing markets, Draghi claimed, “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate.” Whatever that means—markets seemed to shrug off the confusion and rebound strongly, erasing Thursday’s losses.

While average hourly earnings growth slowed to 0.2% from October’s 0.4%, the jobs data was still robust enough to reinforce expectations of a December rate hike. According to CME Group data, Fed fund futures now suggest a 79% probability of a hike this month and a 50/50 chance of another by March. My take? We’ll see. Betting against the Fed is risky, but the 21% still betting “no hike” may have their reasons.

The 2015 Investment Landscape: Gains, Losses, and Lingering Headwinds

As 2015 draws to a close, investors are bracing for the final push of the year. It’s been a mixed bag, with little in the way of sustained price appreciation for the Dow Jones or S&P 500. Beyond the numbers, investors faced a barrage of headwinds all year:

• A persistently strong dollar

• Weak multinational earnings

• China’s currency devaluation

• Uneven U.S. economic growth

• Two consecutive quarters of declining S&P 500 earnings and revenue (a first since 2009)

• Ongoing global economic uncertainty

Falling oil and commodity prices only added fuel to the fire, hitting sectors like Energy, Materials, and Industrials particularly hard, and further stoking fears around global growth and geopolitical instability.

Interestingly, while Q3 earnings were weak, the fact that most of the damage was isolated in the Energy sector helped soften the market’s overall reaction. According to FactSet, more companies beat earnings expectations than missed them—but fewer surpassed revenue estimates.

Staying Disciplined: Risk Management Amid Structural Shifts

Despite the market’s resilience since the August lows, there have been numerous warning signs that keep us cautious. This year-end rally is typical of seasonal patterns, but it’s been narrow and marked by poor participation. That’s a red flag.

Our approach remains focused on disciplined risk management. We follow price levels closely, and in volatile environments like this, we often get “whipsawed” as the markets transition—possibly toward a secular change in trend. With high-frequency traders capable of driving dramatic swings, risk management is more important than ever.

We’re prepared to reduce exposure if market conditions worsen and recent gains can’t be held convincingly. Staying nimble, disciplined, and focused on long-term objectives is essential in this environment.

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