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Why the Low Market Volatility?

The market was lackluster during the early part of today (4/28/21), awaiting the release of FOMC minutes at 2 pm. A recap of the minutes shows the Federal Reserve left interest rates near zero and the pace of its asset purchases unchanged. Chairman Powell acknowledged signs of an economic rebound as the U.S. begins to recover from the Covid-19 pandemic.


Powell also sees some froth developing in equity markets and other assets due to the faster pace of the Covid-19 vaccination and the reopening of the economy. The FED chairman again reiterated his stance that a persistent increase in unemployment that resulted in rising long-term inflation expectation was unlikely and transitory. The FED will begin to taper down its $120 billion in monthly asset purchases before it begins to raise interest rates.


In summary, the FED kept to the same bullet points of the prior meetings suggesting U.S. interest rates will stay near zero, and increasing inflation is only transitory.


The positive FED news ignited a late-day buying as volume increased into the end of the day. However, traders and investors remain hesitant to make significant bets in either direction, probably still waiting for earnings reports to come out into the remainder of the week.


It has become increasingly hard to determine the short-term directions of various stocks after announcing earnings. Several positive earnings reports have led to short-term selling. Exceeding earnings expectations is not enough. Investors are also expecting higher growth projections and revenues. For instance, Microsoft (MSFT) reported great earnings after the market close yesterday but sold off sharply today. The same occurred in NFLX and INTC last week after their respective earnings announcements. Although these are a few examples, there may be few more occurrences as earnings announcements come full circle.


The question remains why the low market volatility?


The lack of volume in recent weeks, lackluster trading, and low market volatility may be attributed to investors and traders waiting for the end of the earnings season. Large tech companies, like Microsoft (MSFT), Alphabet (GOOGL), Apple (AAPL), and Facebook (FB), have already reported. Amazon.com (AMZN) will report tomorrow after the market close.


As we near the end of quarterly earnings, will investment fears subside, and stocks and stock market indexes resume their primary trends?


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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