Higher Volatility Forecasted on S&P 500 in 2020

By Dale Gillham | Published 18 February 2020

According to many financial experts, volatility is great for the stock market and this year many are expecting the volatility to increase on the S&P 500 in 2020. Volatility is not necessarily a bad thing, as it can cause the market to rise or fall although what generally does cause issues for investors is the speed at which the market rises or falls, which is why it is important to look at the Volatility Index (VIX).

The 30-day expected volatility index is currently sitting around 12.3 percent although this will often move to around 20 percent in a market decline. As it currently stands, volatility is low, which implies there is unlikely to be any fast movements in the US stock market right now.

In my opinion, I expect the US stock market will continue to rise over the coming week despite threats of the Coronavirus becoming a pandemic. Further, as we are continuing to see positive company results during reporting season driving prices higher, it is likely the market will continue to be buoyant. So far this month, the S&P 500 has closed up around 4.6 percent at 3,380 points.

Nike Inc has definitely been a major driver for the US market rising, as it achieved an all-time high of US$105.62 on 22 January 2020 before falling by around 9 percent to the end of the month. Nike shares have since risen to $103.54, as it was up by 4.35 percent last week to recover most of the loss. Nike is due to report earnings on 19 March and being a big retail brand, this report will be an indicator of current consumer spending.

So where is Nike’s share price headed? I expect the stock to turn at around US$110 although I believe it has the potential to run to between US $120 and US$130 this year.

Looking at the economy, your current view would most certainly be based on what you have been reading or hearing in the news. A report out last week indicated that retail sales rose in January for a fourth straight month and that a fall in fuel prices is said to have provided the impetus for Americans to spend on other goods, supporting solid consumer spending.

The point about fuel prices was quite interesting, given that the fuel price at the bowser is cheap but is it cheap enough that results in more cash in your wallet at the end of the week. Interestingly, another report was less buoyant about consumer spending with it stating that consumer spending appeared to have slowed in January and may have an impact on the US economy’s ability to expand at a moderate rate.

If we look a little deeper, the US Commerce Department said last week that retail sales (excluding automobiles, gasoline, building materials and food services) were unchanged last month. Data for December was revised down to show core retail sales rising 0.2 percent instead of jumping 0.5 percent, as previously reported. In short consumer spending is relatively flat.

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