The catalysts behind the return of stock market volatility, in one chart

  • Volatility in US stocks is lifting again
  • The Dow Jones Industrial Average has fallen by over 1% in each of the past three trading sessions
  • Deutsche Bank has an excellent flow chart to explain the catalysts behind the recent selloff

It’s not been a good start to the month for US stocks, mirroring what was seen in early February.

The Dow Jones Industrial Average has fallen by more than 1% in each of the past three trading sessions, the first time that’s been seen since early January 2016 when concerns about the Chinese economy dominated the headlines.

The VIX has also risen to 22.5, suggesting that traders think the wild price action over the past month will likely continue in the month ahead.

Suddenly, after years of placid market moves, markets are looking more than a little skittish.

But why?

For those trying to piece it all together, this flow chart from Deutsche Bank is as good as any written commentary we’ve seen, looking at the catalysts, at least in its opinion, that sparked the recent selloff in stocks:

Source: Deutsche Bank

Fueled by combination of stronger US labour market conditions, increased US fiscal spending, continued weakness in the US dollar, expected shifts in monetary policy and geopolitical risks, Deutsche says that all contributed to “an unfavourable rise in interest rates”, eventually resulting in higher volatility and selloff in stocks on valuation grounds.

Given the stock market rout on Thursday was driven by renewed concerns over a potential global trade war, the chart could well be updated depending on what happens next.

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