Kuwait: March 07, 2018
MARKET VOLATILITY HAS RISEN AS TIGHTER MONETARY CONDITIONS LOOM
February was a bumpy month for markets, with volatility rising to its highest levels in over two years. The S&P 500 index is down 5% from peaks after regaining some of its losses. Fears of complacency combined with a changing view on the pace of central bank tightening, particularly in the US, laid the ground for the market retreat since early February. Yields have also climbed as some factored in a more hawkish Fed in 2018. Meanwhile, economic data continued to confirm a robust recovery in the global economy, whose outlook improved on expectations of a more favorable fiscal policy in the US.
Global equities in February closed in the negative across the board and experienced heightened volatility. The MSCI All Country World Index shed 4.4% while US equities did not fare any better with the Dow Jones and S&P 500 both dropping 4.3% and 3.9%, respectively. On February 5, the Dow Jones experienced its largest intraday drop losing 1,600 points although it slightly recovered and closed down 1,175 points. The intraday drop was a result of market participants pulling back on the fear of faster than expected rising interest rates. Coincidentally on February 5, James Powell assumed office as Chair of the Federal Reserve. Later in the month, Trump inked a massive spending deal ending the year’s second government shut down. Additionally, the market’s expectations for rate hikes increased to four from three.