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Video: Will Seasonal Changes Revive Volatility and Restore Trend?

Video: Will Seasonal Changes Revive Volatility and Restore Trend?

Talking Points:

  • We look at the results of a poll asking what restores volatility: Jackson Hole; seasonality; or a 'crisis'
  • Remarks from Janet Yellen and others generated a significant move Friday, but follow through remains dubious
  • Historically, the VIX rises in August and the S&P 500 dives in September; but but volume remains the linchpin

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Volatility and trend will eventually return for the financial markets, but the genesis for this revival remains unclear. A late burst of activity for risk-oriented assets this past Friday lifted hopes and appetites amongst traders parched for meaningful trading opportunity. Monetary policy commentary from the Jackson Hole Symposium certainly taped memories of past events which charged remarkable trends. Yet, in a poll conducted at the beginning of the week, few believed this event would supply the spark for a lasting move. And, despite the week-end volatility, I agree with this skepticism.

There are considerable limitations for the summit's rhetoric recharging a market waylaid by circumstance and disinterest. One of the more prominent hurdles comes in the form of seasonal restraints. We are heading into a week that holds the final days of August and opening days of September. Notably, this is the week that precedes the Labor Day holiday in the US. While the VIX volatility index has historically started to rise through the month of August, the S&P 500 has presented its trough in volume with little discernible predisposition towards performance.

It is the 'structural' limitations that have developed over months and years that truly burden the market. And, overcoming those restraints will likely require more than just the seasonal rebound in VIX and average drop in the equity index benchmark. A catalyst for participation (or volume) is needed. And, given the moral hazard and complacency that have taken root,that may very well take a crisis-like event. We weigh the market's susceptibility as opportunity in this weekend Strategy Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.