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What's Up with the Market Sell-Off?

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Wednesday, October 12, 2016

A surging dollar is being blamed for increased volatility in the market lately, with the greenback gaining 2.3% in value versus a group of other main currencies since the start of October. This is the strongest trajectory for the dollar in the past five months.

This has brought a blustery headwind for U.S. multi-national corporations that rely on business success overseas. What resulted yesterday was main stock market indices down anywhere from 1.09% (the Dow, down 200 points) to -1.54% (the Nasdaq, down nearly 82 points). At this hour, we’re seeing the S&P 500 down an additional 4.25 points (it was down 1.25% yesterday), the Dow down another 41 and the Nasdaq down 12.5 points.

It would appear that at this period in time — think of it as a quiet before the Q3 earnings storm — market participants are adjusting themselves with an eye on a sixth consecutive quarter of negative earnings results on the S&P 500. The margins are definitely tightening, meaning the earnings recession looks to be over sooner than later, but odds are currently that this will continue as results pour in over the next month.

For more information on what to expect from Q3 earnings season, check out Zacks Director of Research Sheraz Mian’s latest Earnings Preview report: Previewing Q3 Earnings Season.

Zacks Stock Strategist and Options Trader Dave Bartosiak notes that volatility has been low for a very long time. “Just looking at the S&P, it's been in an 80-handle range since July 8th,” he says. “The thing is, as ranges compress, the odds of a breakout in either direction actually increase. Sort of like a coiled spring.

“Yesterday we saw a good spike in volatility and we'll need that to confirm a break in either direction,” he continues. “The key for this market, though, is follow-through in one move. It simply hasn't given us that, effectively capping volatility and putting constraints on the market. Also, the December rate hike looms large.”

While we await Q3 earnings reports from the big banks starting tomorrow morning — JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) among them — checking in on market trading behavior such as the above comments will have to be our guide.

Mark Vickery
Senior Editor

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