- YouTube/Epic Slow Mo
It’s not over yet.
While stocks took a turn for the better on Tuesday, the unpleasantness may not be over yet, according to JC O’Hara at FBN Securities.
“The global markets had extreme selling on Friday. Many of our indicators spiked to levels not seen in months/years,” O’Hara said in a note to clients Tuesday.
“Typically, this sort of volatility is not the ‘one and done’ kind, but rather aftershocks are expected after the global earthquake.”
O’Hara pointed to the fact that in recent years, downturns, such as the financial crisis and the European debt problems produced not just an initial drawdown, but also smaller subsequent reactions in the days that followed.
- FBN Securities
To be fair, there are differences. Whereas the financial crisis and debt issues were ongoing affairs with twists and turns, the Brexit vote began with a discrete event – a referendum. While many unknowns surround it, the move by the UK to leave the EU was a surprise.
The Brexit downturn, however, appears to be different from other recent drop-offs that led to quick recoveries.
“When a small part of the market experiences turbulence it has the ability make a speedy recovery or that V-shaped pattern we have grown accustomed to,” O’Hara wrote.
“When global markets, in unison, are hit, the recovery on average is not as robust and more often than not, choppy trading ensues.”
O’Hara said he was bullish on US stocks but had his eye on a critical events including the Brexit vote. Now with the ensuing shake-up in stocks, O’Hara has gotten more cautious.
“In light of the global volatility, we need to alter our outlook on US stocks to a more neutral stance,” he said.
“This is not to say that the S&P 500 is all doom and gloom but rather downside risks have substantially increased with the injection of fresh global volatility. The risk/reward does not favor being caught too long.”