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Growing Market Stress Ahead as Shutdown Looms

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Market Stress Rises Ahead of Uncertain Week

Investors have remained relatively calm during a stock market slump that has led to the S&P 500 Index's first losing quarter in a year. However, signs of stress are emerging beneath the surface, extending beyond the narrowly-averted US government shutdown. The frequency of big down days and the scarcity of large rebounds are weighing on sentiment. Last quarter, three out of the six days when the S&P 500 lost more than 1% occurred since mid-September, while there were only two days when the index gained more than 1%. This down-to-up ratio is the highest since 1994. Options traders are cautioning against complacency, as a gauge of expected price swings in the S&P 500 Index over the next week is higher than the expected volatility two months from now. Traders are nervous due to the specter of a potential government shutdown, the elevated yield on the 10-year Treasury note, and uncertainties surrounding the Federal Reserve's response to combat inflation. Additionally, an ongoing auto-worker strike adds to the risk of wider price swings. While trading has remained orderly, traders are preparing for lingering volatility. The price of a straddle strategy, which bets on wider price swings, is higher than the average two-month reading for several US-focused exchange-traded funds. Some investors are capitalizing on the volatility, making strategic moves to protect against potential market declines. While anxiety may be rising, it has not reached panic levels. However, rising rate anxiety, share buyback freezes, and uncertainties surrounding the auto-worker strike and potential government shutdown have weighed on sentiment. The widening spread between short-term and longer-dated options indicates increased sensitivity to near-term market moves. Market stress persists, and the future trajectory remains uncertain.

The Impact of Rising Market Stress on New Businesses

The escalating market stress, as evidenced by the S&P 500 Index's first losing quarter in a year, presents a challenging landscape for new businesses. The frequent big down days and scarcity of large rebounds are not only weighing on investor sentiment but also potentially affecting the confidence of new businesses.

Market Volatility and New Business Strategies

The increasing volatility in the market, highlighted by the higher expected price swings in the S&P 500 Index over the next week, could force new businesses to rethink their strategies. The uncertainties surrounding potential government shutdowns, inflation control measures by the Federal Reserve, and ongoing labor strikes could significantly impact business planning and operations.

Managing Market Uncertainties

In this volatile market, new businesses need to be agile and resilient. They must be prepared to adjust their strategies and operations in response to market fluctuations. This could involve diversifying their investment portfolios, implementing robust risk management strategies, and closely monitoring market trends.
Turning Challenges into Opportunities
Despite the challenges, market volatility could also present opportunities for new businesses. For instance, the rising price of straddle strategies indicates that some investors are capitalizing on the volatility. Similarly, new businesses could seize this as an opportunity to innovate, adapt, and strengthen their market position amidst the uncertainties.
Story First Published at: https://financialpost.com/pmn/business-pmn/market-stress-rises-over-wild-week-ahead-even-without-a-shutdown
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