Thriving in Volatile TimesElevated volatility has been an enduring characteristic of the markets in recent years. Friday's sharp pullback of about -2.9% in the S&P 500 after a 7% run up in the prior nine days was a reminder that volatility remains high even on a daily basis. This is due, in part, to the current stage of the economic cycle notorious for highly volatile markets. But there are longer-term forces at work likely to keep volatility above average, as well. The economic recovery in the United States that likely began a year ago is ending. The United States economy is now expanding to new highs, not just recovering.
- Nominal GDP, the broadest measure of economic activity, has already recovered all the ground it lost during 2007-09 and is now back above its prior peak.
- Consumer spending has also rebounded to new all-time highs.
- During the second quarter earnings season now underway, a number of companies have reported sales or profits that are at new all-time highs, including chip maker Intel (INTC).
- Leading indicators of economic activity have begun to roll over as the strong growth momentum that is characteristic of a recovery starts to fade.