Vanguard experts discuss factors that lead to market turbulence

Vanguard Perspectives® Noni Robinson: John, over the past several months, we’ve seen periods of high market volatility. Can you talk about some of the factors driving this, and what are the short and long-term market expectations?

John Ameriks: Well, sure, you know, I think some of the things we’ve been talking about the growth scares that are out there, the perceived fragility, the fact that the U.S. seems to be the one source of robust economic growth going forward—I think those are all factors. Another one would be the first interest-rate change in many, many years and people trying to interpret what that means, how quickly the Fed is going to move on rates. And then, to some extent, I think there’s always an element of feedback to this. Volatility tends to feed on itself sometimes. And so when there is a little bit of volatility, that gets amplified until it sort of stops. Volatility reflects uncertainty, and there is certainly a lot of uncertainty that’s still out there in the marketplaces from a variety of sources.

Roger Aliaga-Díaz: Yeah, one of the things you mentioned, John, is the Fed, the liftoff in December, and there is a lot of uncertainty around turning points like those. I think what happened in the beginning of the year, the markets were really trying to understand not just that particular rate hike but more the entire path of rate increases going forward and how, basically, the Fed’s going to execute that, right? Perhaps, as the months passed and there was more clarity [from] the Fed, basically, in the message in terms of a base, a measured base of rate hikes, the volatility has subsided on that front. And the volatility is also tied to what’s happening in the oil markets and the currency markets with emerging market countries. So the Fed seems to be a little bit at the center of this.

Joe Davis: I think, also, there’s a lasting imprint of the secular or strategic transformation and structural transformation in China. And so any policy changes there, because they’re using a number of tools as you, John and Roger, know. I think that in and of itself is also leading to a little bit higher alert and sensitivity of the market to changes or debating changes in policy.

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