Q3-Q4 Market Volatility—What's Causing It

We're waiting for the locusts to arrive. As we end the worst quarter for the S&P 500 since Q4 2008, everyone keeps asking: what is causing all the volatility?

The answer is, the world changed in the beginning of August. Europe meltdown, China and U.S. economy slows, S&P downgrades U.S. debt ...the quarter from hell.

The Volatility Index (VIX) went from 22 to over 40...the S&P 500 went from 1,300 to 1,125...in less than two weeks in the beginning of August!

The S&P downgrade was the coup de grace, the final stroke. That Monday, August 8, the VIX exploded and has never looked back.

Why was that so important? It appears as if options guys — who determine much of the volatility pricing — realized that their assumptions about the U.S. and global economies were wrong. They've been trying to figure it out ever since, but they can't get their hands around it. That's called uncertainty. It's called volatility.

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