January 27, 2012
Schwab Market Perspective: Slow Road to Normal
by Liz Ann Sonders, Brad Sorenset, and Michelle Gibley
The absence of the regular daily triple-digit moves in the Dow that characterized 2011 to start the year has felt a bit strange to investors who were getting used to the elevated volatility. However, recent action is more indicative of the way markets usually perform, and has contributed to nice equity gains so far in 2012. Additionally, it appears that at least some of the market attention has been taken off of the European debt crisis and we have seen some of the highly-correlated, risk on-risk off trades that dominated recently dissipate.
Key Points
* Market volatility has fallen and tight correlations have loosened, indicating to us some calming of fears and increased attention on more traditional economic and earnings-related news. We believe this is a good sign for stocks in the foreseeable future.
* The Federal Reserve unveiled its new communication strategy after its most recent meeting, reiterating that interest rates will likely remain extremely low for some time. Meanwhile, Congress returned to Washington to low expectations as we slog toward the November elections.
* The European picture is brightening slightly and there may be a glimmer of hope for stock market investors. After a soft patch, it appears that global growth may be turning around.
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