More Volatility Expected for Stocks

Summary

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Podcast Summary: WSJ Your Money Briefing – “More Volatility Expected for Stocks”

Date: October 6, 2018
Host: Charlie Turner (B)
Guest: Corey Driebush, WSJ Markets Reporter (C)

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Episode Overview

The episode centers on the recent sharp declines in the US stock market, focusing on the role of rising bond yields, sectoral shifts (especially in tech stocks), and an uptick in market volatility. Host Charlie Turner and markets reporter Corey Driebush break down what’s driving the sell-off, whether more turbulence is likely, and how investors are reacting. The discussion also covers the week’s economic indicators and previews the coming week’s key financial events.

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Key Discussion Points & Insights

1. Recent Stock Market Pullback ([00:36]–[01:24])

• Market Recap: Stocks fell sharply for the second consecutive session, with tech shares hit hardest.
  • Dow: −180 points (to 26,447)
  • Nasdaq: −91 points
  • S&P 500: −16 points
  • For the week: Dow flat, Nasdaq −3.2%, S&P −1%
• Cause: Initial attribution to rising bond yields.
• Corey Driebush’s Analysis:
  • The rise in bond yields didn’t trigger a straightforward shift from stocks to bonds, but “caused a shift almost in thinking.”
  • Investors are re-evaluating equity holdings given higher yields and seeking safer assets, e.g., utilities, or possibly bonds—which is somewhat paradoxical given utilities typically move with bonds.

  “It kind of led to selling winners and almost kind of taking those profits off the table... So it’s been kind of a funny thing to watch the last two days.” — Corey Driebush [01:24]

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2. Jobs Report and Interest Rates ([02:33]–[03:27])

• Jobs Data: Job growth came in weaker than expected (134,000 jobs), unemployment rate dropped to 3.7%.
• Immediate Market Reaction:
  • Brief dip in bond yields, stock futures rose momentarily, but then reversed as traders digested the numbers.
  • Weather-related factors (hurricane disruptions) likely contributed to the weak number, as per analysts Corey consulted:

  “It was pretty easy to justify, maybe caused by the hurricane last month which... really wiped out work and changed things for almost a full week.” — Corey Driebush [02:42]

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3. Why Tech Stocks Got Hit ([03:27]–[04:09])

• Reason:
  • Tech had significant gains through the year, so “profit taking” is prevalent—a less dramatic but realistic explanation for the pullback.
• Trader Sentiment:
  • No sign of panicked selling, more a strategic trimming of positions in sectors like tech and consumer discretionary.

  “It was more of a let’s... trim some positions. And tech is an easy area to trim.” — Corey Driebush [03:31]

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4. Rise in Volatility & What It Signals ([04:09]–[05:35])

• VIX Inversion:

  • More technical investors noted the VIX futures curve inverted—a “warning signal” for heightened anxiety.
  • Historically, similar inversions have preceded sharp market declines (e.g., February 2018, August 2015).

  “Whenever you see the VIX invert, you get a little nervous.” — Corey Driebush [04:13]

• Expectations for Continued Volatility:

  • Consensus among traders: expect swings to continue, but this isn't likely the start of a full-blown bear market.

  “Volatility should be expected to continue... not expecting this to turn into some sort of bear market.” — Corey Driebush [05:35]

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5. Upcoming Economic and Earnings Events ([06:08]–[06:49])

• Market Open:
  • Monday, Oct. 8 is Columbus Day—a holiday, but the markets will remain open.
• Economic Data Scheduled:
  • Labor Department: September reports on producer and consumer prices.
  • National Federation of Independent Business: Small business sentiment survey for September.
  • University of Michigan: Mid-October consumer sentiment index.
• Corporate Earnings:
  • Walgreens Boots Alliance, and major banks (Citigroup, Wells Fargo, JPMorgan Chase, PNC Financial) set to report quarterly numbers.

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Notable Quotes

• “It’s been kind of a funny thing to watch the last two days that bond yields are going up, the stock market is going down, but utility shares are going up... that’s how it all the convoluted description of what’s going on.”
  — Corey Driebush [01:24]

• “When I talked with traders and investors the agreement seemed to be that volatility should be expected to continue the rest of the year... but we’re not expecting this to turn into some sort of bear market.”
  — Corey Driebush [05:35]

• “Whenever you see the VIX invert, you get a little nervous.”
  — Corey Driebush [04:13]

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Timeline of Important Segments

• Market Recap, Causes, Sector Shifts — [00:36]–[02:33]
• Jobs Report Impact — [02:33]–[03:27]
• Tech & Profit-Taking Explanation — [03:27]–[04:09]
• Volatility & VIX Inversion — [04:09]–[05:35]
• Investor Outlook & Market Direction — [05:27]–[06:01]
• Preview: Upcoming Week — [06:08]–[06:49]

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Tone and Takeaway

• The conversation maintains a level-headed, analytical tone. There’s no alarm, just recognition of shifting market conditions.
• Listeners are advised that more volatility is very likely as the year goes on, but most professionals don’t see evidence of a fundamental market breakdown.
• Strategic rebalancing and cautious attention to economic events and signals like the VIX are prudent during such periods.

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Transcript

[A]

Still running global payroll like a relay race Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.

[B]

With your money briefing. I'm Charlie Turner with the Wall Street Journal in New York. Stocks fell sharply for a second straight session on Friday as another rise in bond yields put pressure on equities once again. Tech shares were the big losers. The Dow Jones Industrials fell 180 points to 26,447. The tech loaded Nasdaq Composite lost 91 points and the S&P 500 dropped 16. For the week the Dow was virtually flat while The NASDAQ tumbled 3.2% and the S&P dropped 1%. Cory Driebush is markets reporter for the Wall Street Journal. Corey, it's been quite a while since we spoke last. Welcome back.

[C]

Thank you Charlie.

[B]

This has been a two day pullback and attributed to rising interest rates that really drew investors away from stocks, didn't it?

[C]

Yes, and it's funny to say it's attributable to rising interest rates. I've had a little bit of a problem with that with just entirely attributing that. However that definitely sparked the sell off and it wasn't so much that investors are selling stocks to buy bonds. It was more it caused a shift almost in thinking and this realization that we need to rethink our equity holdings and rethink their value relative to bonds as interest rates go up. And it kind of led to selling winners and almost kind of taking those profits off the table and maybe deciding whether or not maybe I should put them into safer quote unquote safer stocks like utilities or maybe I should put them into bonds. And it's so it's been kind of a funny thing to watch the last two days that bond yields are going up, the stock market is going down but but utility shares are going up, which you never think that utilities go up at the same time as bond yields, but that's how it all the convoluted description of what's going on.

[B]

Did the jobs report have an effect on interest rates? Job growth was weaker than expected at 134,000 while the jobless rate fell to 3.7%.

[C]

It was funny right after the jobs report came out this morning, you Saw the knee jerk reaction of in the first brief moments, bond yields went down a little bit and stock futures went up and then everyone kind of readjusted and yields continued to go back up and stock futures then went back into negative. And it was funny because I think it was a weaker than expected number but it was pretty easy to justify, maybe caused by the hurricane last month which as I talked to one analyst who was saying it was a very slow moving hurricane. So it really wiped out work and changed things for almost a full week. It wasn't just a one day affair.

[B]

As mentioned, the technology sector was a big loser this week. Why is this the case?

[C]

Well, if you can remember correctly, tech has been such a big winner all year. So if investors are trying to look to take some money off the table or just take some profits while they can, and I know that's not the most exciting description, profit taking, but from all the traders that I spoke to, I said this wasn't like a panicked selling that we were seeing on Friday and Thursday. It was more of a let's trade, trim some positions. And tech is an easy area to trim and so is consumer discretionary. Another one of the big decliners. The last couple days.

[B]

Volatility really kicked in late in the week. Can we expect this to continue?

[C]

Yes. So something pretty interesting about volatility, this is pretty technical, but the VIX futures inverted and that's a pretty interesting warning signal. So I talked to a lot of traders who are very concerned about what happened there and that means that it's kind of hard to explain. So near dated futures contracts tracking the CBOE volatility index, the vix they jumped above those tracking futures contracts that expire later. So that just points to heightened anxiety. And the last couple times this has happened, I think this happened in February which obviously we saw quite, quite a sell down back in February and another time that a trader I was speaking to said that they saw the VIX invert was in August of 2015, which if you remember that was around the time of there was concerns about China and that was when we had that ETF kind of flash crash. So that was, those were pretty crazy several days of trading. So whenever you see the Vixen for you get a little, little nervous.

[B]

That's a sign.

[C]

Yeah.

[B]

From what you've heard from investors, is this just a temporary sell off or is this a sign of things to come?

[C]

It's funny, when I talked with traders and investors the agreement seemed to be that volatility should be expected to continue. The rest of the year that these stock swings are not the end or not at the end. Also, the consensus seemed to be this is probably not the bottom of this little sell off, but we're not expecting this to turn into some sort of bear market.

[B]

Wall Street Journal markets reporter Corey Driebush, thanks a lot, Cori.

[C]

Thank you so much, Charlie.

[B]

Looking ahead to the New week, Monday, October 8th, Columbus Day is a holiday, but not for Wall Street. The markets will be open. On the economic schedule, we'll get the Labor Department's September reports on producer and consumer prices. Also during the week, the National Federation of Independent Business issues its survey on small business sentiment for September. And the University of Michigan releases its mid October consumer sentiment index. On the earnings front, Walgreens Boots will report its quarterly numbers. And some big banks also release earnings, including citigroup, Wells Fargo, JPMorgan Chase and PNC Financial. And that's your money briefing. I'm Charlie Turner at the Wall Street Journal.

[A]

Deal replaces fragmented payroll vendors with one global system. No third parties. Hire, manage and Pay teams in 150 plus countries. Operate like a local everywhere. Visit d e l.com WSJ.