Volatility Could Return in 2018 -- Here's Why

Trade uncertainty will cause more volatility. The market isn't quite out of the woods yet when it comes to the 'fear index.'
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October's stock plunge brought the volatility index way up. The worst is over, right? Maybe not actually. 

JJ Kinahan, Chief Market Strategist at TD Ameritrade told said that trade uncertainty between the U.s. and China will continue to induce volatility until the trade talks settle, whether they settle for the better or worse. 

"I think we're certainly expecting it {volatility} for the rest of 2018 until we have some clarity there {on trade}," Kinahan said. Aside from the U.S. market, volatility elsewhere is definitely in the cards, and beyond this year. "In 2019, even if you take away our own trade, you still have Brexit, you have the European Union that has some issues in terms of budgets, so I would find it hard to believe that we don't return {to volatility}," Kinahan said. 

President Trump recently met with Chinese leader Xi Jinping and said the conversation was productive, but of course, Trump's history with trade negotiations with China have been volatile, themselves. The market will likely continue to price in positive and negative news when such news arises, until it settles at levels that reflect the longer-term expected trade situation. 

Trump's protectionist regime limits goods flowing into the U.S. from China, lifting prices on goods and hurting demand. U.S. companies who buy taxed imported goods to produce goods they sell see an elevated cost of production, pressuring their gross margins.