Don't relax! Market volatility may not be over yet

Recently, concerns about the US economic recession, bleak corporate profit reports, and exchange rate fluctuations have impacted the US stock market. While investors seem to have regained their composure, experts warn that the turmoil may not be over yet.

Paul Dietrich, Chief Investment Strategist at B. Riley Wealth Portfolio Advisers, wrote in a subtitle of his latest research report, "The stock market seems to finally be correcting." He attributed the "massive sell-off in the stock market" to "looming concerns of a US recession," triggered by deteriorating economic data, and warned that the S&P 500 index could eventually drop 40% from recent highs.

This week, Peter Oppenheimer, Global Head of Stock Strategy at Goldman Sachs, pointed out that there is still anxiety in the market, which could lead to further volatility.

Oppenheimer stated, "My feeling is that although this correction is stabilizing, it is not over yet. As investors begin to recalibrate and rebuild confidence in interest rates and the economic direction, I believe we will continue to see market fluctuations in the short term."

Many investors hope that the market downturn and increasing signs of economic weakness will prompt the Federal Reserve to start cutting interest rates, boosting asset prices. However, veteran economist David Rosenberg warned investors not to breathe a sigh of relief if this happens.

Rosenberg pointed out that after the Federal Reserve began cutting rates in January 2001 and September 2007, recessions occurred within a few months. In both cases, the S&P 500 index subsequently fell by about 40% and 50% over the next few years.

Rosenberg said, "Now you know where the term 'dead cat bounce' comes from."

He also noted that economists at JP Morgan recently raised the probability of a recession this year from 25% to 35%, while economists at Goldman Sachs now expect a 25% chance of a recession in the next year, up from the previous 15%.

Rosenberg cautioned, " Few asset classes have priced in these probabilities."

These experts' comments indicate that as the possibility of a recession increases, investors should be prepared for more market turbulence and potential significant declines, even if the Federal Reserve intervenes to support the market.

Some other experts are less concerned. In a recent report, Tom Lee of Fundstrat viewed the sharp decline in Wall Street's "fear index" VIX as a reassuring sign. "The VIX dropping from 66 to 27 is a positive signal, further indicating that this is a 'growth scare,' and the worst-case scenario may have passed."

No one can accurately predict where the market will go next, and Wall Street is divided on several issues: whether the US economy is robust or crumbling, whether the artificial intelligence boom is a bubble, and whether the Federal Reserve will start cutting rates in the coming weeks—and if so, whether it will be too late or too early However, recent trading days have shown that even the best-performing assets may experience significant declines when nervous investors receive bad news. If the bear market proponents are correct, similar situations may occur in the future