S&P 500; US Indexes Fundamental Daily Forecast – Volatility is Here to Stay

U.S. equity futures markets are trading sideways to lower early Monday. Last week, investors decided to aggressively book profits in reaction to the end of earnings season and political events in Washington and geopolitical events in Barcelona.

The price action suggests there is more downside potential. Some traders are saying the thin volume is responsible for the size of the sell-off. This thought has some validity since volume is below average and expected to remain this way until after the U.S. Labor Day holiday on Monday, September 4.

Given the domestic and international uncertainty and the absence of the major players – institutions and mutual funds – I don’t expect the markets to mount a dramatic turnaround.

Volatility has returned and investors have to get used to this. This is going to come as a surprise to those traders who fail to make adjustments to their trading style.

Traders are going to have to prepare for a return of higher market volatility and lower long-term returns.

The Fed is also preparing to let up a little on the gas that has been driving this market higher. Since the Fed first started providing stimulus, the S&P 500 has returned about 225%. This has made this bull market one of the easiest to trade. Turning in a profit is going to become difficult for both short-term and long-term investors.

One key to success over the near-term will be identifying the value areas ahead of time. The other will be identifying your exits ahead of time. Because of the one-way market, investors have gotten used to “buying the dips”. This trading style may have worked when the trend was clearly trading higher, but may not work at a time when the daily trend is pointing lower and the weekly trend is still up.

Given the current volatility, anyone who buys dips is likely to take profits a lot faster than they were doing just a few weeks ago when the major indexes were pressing all-time highs.

There are no major economic events today, but a few domestic and international events are taking place that could cause some volatility. The U.S. and South Korea are beginning military exercises which are expected to last from August 21 to August 31. We don’t know how North Korea will respond to this news, if at all.

Additionally, President Trump is expected to give a speech on U.S. military activity in Afghanistan. Talk is circulating that he may order the deployment of up to 4000 additional troops.