A Wild Ride To Nowhere

THE US STOCK market has had more swings lately than a gymnast on the pommel horse. Stocks rallied August 8, with the Dow Jones industrial average up more than 300 points, or up 2.65%, and the S&P’s 500-stock index gaining 2.4%. A rally like that might look like a decisive move higher, but this summer it seems almost routine. In the past 10 days alone, the Dow has seen triple-digit swings up or down on seven days. Despite the wild ride, stocks have gone nowhere in the past six weeks. More than a week into August, the S&P 500 trades almost exactly at the same level as late June. Many long-term investors seem to be leaving their money on the sidelines, while they waver between optimism and pessimism. Meanwhile, short-term traders jump at every piece of news, pushing the market hard in one direction for a day or less. Lifting investors’ spirits every few days have been frequent drops in the price of oil. Yet the persistent financial crisis continues to weigh on the market. The stock market tends to look ahead to the future — but that future’s hazy now. The US and world economies seem to be at turning points. It’s hard to grasp the complexities of the financial system’s distress or the stress on the world economy. Despite the wild swings, there has been no spike in the VIX, a market volatility index based on the options traded on the S&P 500 that often reflects the level of fear and panic in the market. The VIX hit a recent high of 32.24 on March 17, after the collapse of investment bank Bear Stearns. And it rose above 28 in early July amid worries about Freddie Mac and Fannie Mae. But the VIX, which trades on the Chicago Board Options Exchange, was barely above 20 on August 8, three points below the past year’s average. The lack of fear may reflect confidence among professionals that, eventually, the stock market will settle down and find a direction.