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Three Reasons The Stock Market Is So Volatile

Three Reasons The Stock Market Is So Volatile by Mark Burgess, Columbia Threadneedle Investments

  • The most important aspect of China’s slowdown is whether it leads to lower but better quality growth, or whether something more serious occurs.
  • Lower energy and commodity prices should provide a boost for consumers, but evidence suggests that the gains are being banked rather than spent.
  • While the Fed is likely to raise interest rates in the coming months, it is important to remember that policy will only move from very accommodative to accommodative.

Since late August, equity markets have been volatile and this trend shows few signs of abating in the short term. To my mind, three issues are unsettling markets:

  • Economic uncertainty in China, and, in particular, the ability of the Chinese authorities to engineer a "soft" economic landing.
  • The weakness in commodity markets and the associated knock-on effects for commodity producers and exporters.
  • Monetary policy uncertainty, as the Fed moves towards its first interest rate rise since 2006.

In China, the authorities appear to have adopted a "box of chocolates" approach to capitalism. In other words, they have been happy to support the aspects of capitalism that they like (such as rising living standards and the growing importance of China on the global stage) but...