NEW YORK ( TheStreet) -- The summer is coming to an end, which means we are on the last leg of light trading volumes and uncertainty over monetary policy. As close as we are to the end, we are not in the clear just yet. The Federal Reserve meetings don't start for another few weeks, which means investors are left filling the information void by trading on perception rather than hard facts. The lack of clarity has pushed volatility higher and led to a multiweek downturn in U.S. equities. The SPDR S&P 500 ( SPY) seen below shows a break lower after consolidation at record highs, but the market has since stabilized. Lighter volumes will continue to exaggerate price swings, and with both durable goods and Gross Domestic Product numbers out this week, extreme readings in either direction could cause large moves to the downside.
The issue with economic data in the current environment is that all readings are subject to any form of interpretation. If the data are wildly good, then investors can either view them as positive for economic stability, or view them negatively as justification for tighter monetary policy. On the other hand, a very negative number could be viewed negatively as signaling economic weakness or positively as justifying further stimulus. In either case, investors are left in the dark about what will happen. This has led to increased volatility in the market, especially since the much anticipated September Fed meeting is quickly approaching.
The chart below is of the CBOE Volatility Index, better known as VIX. The VIX bottomed in mid-August, then as equities spiked lower, the VIX inversely gapped upwards. An exchange-traded security that closely tracks the price movement of the VIX is iPath S&P 500 VIX ST Futures ETN ( VXX) The VIX sits at elevated levels, but it still looks to have room for a move higher if markets react negatively to economic data this week. Expect volatility to continue in an upward trend.