Plunge, rebound, fall again, rebound again - and then rise slightly to basically recover lost ground.

This is the roller-coaster-like volatility of the S&P 500 this week. After a nearly 4% plunge on Monday, the largest drop since September 2022, the S&P 500 saw its largest gain since November 2022. The market volatility seems to be increasing.

Coincidentally, there was also violent volatility in the international financial markets this week, with major fluctuations in global stocks, bonds, forex and cryptos.

So, will this roller-coaster market become the norm?

George Ball, Chairman of investment firm Sanders Morris, says:

"From now until Labor Day, the market is likely to be volatile. Trading volume will be low, and the release of various economic data will make people excited."

The main cause of the market volatility: excessive trader behavior or significant deterioration in economic fundamentals.

This week, global financial markets experienced violent volatility, but quickly rebounded.

After the disappointing jobs report was released on Friday, US stocks fell sharply on Monday. At the same time, the appreciation of the yen dealt a blow to the carry trade strategy and triggered massive liquidation.

Vineer Bhansali, founder of asset management company Longtail Alpha, believes that this is a "healthy adjustment":

"At present, this is a healthy adjustment. Crowded positions and panic accelerate sales. Momentum trading makes everyone hold large, concentrated positions, and the liquidity is poor when exiting."

Michael de Pass, global head of interest rate trading at Citigroup, pointed out that the market often overreacts during violent fluctuations:

"When these violent fluctuations occur, the market always overreacts, which is exactly what is happening... This is the overshoot driven by the bond market, and given the current federal fund rate level, the bond market has a lot of room to rise."

Jitesh Kumar, cross-asset derivative strategist at French bank Societe Generale, believes that the withdrawal of quant funds was also a driver of the sell-off:

"Quantitative investors who adjust leverage based on volatility have to reduce their exposures. In the summer, which is not the most liquid period of the year, fund flows based on volatility may have exacerbated the sell-off."

Over the next two days, US stocks oscillated. On Thursday, as the drop in jobless claims exceeded expectations and eased concerns about a weakening labor market, stocks began a strong rebound. There is a growing consensus that this volatility is mainly caused by excessive trader behavior rather than a significant deterioration in economic fundamentals.

In terms of corporate profits, technology giants Alphabet, Amazon, and Tesla saw their stock prices slide after disappointing earnings. However, overall conditions remain steady. As of Friday, analysts expect the S&P 500 index's profit growth rate to be slightly higher than 14% in 2024 and 11.8% in 2025.

Max Kettner, HSBC's chief multi-asset investment strategist, says:

"The basic situation is still a soft landing for the economy, and the stock market should further rise in the coming months. Concerns about profits have been exaggerated. We believe this is an overreaction by risk assets."

Next, will the roller-coaster become the norm?

It is worth mentioning that despite the turbulence in the market, investors in US stock funds still seem optimistic.

According to a report citing EPFR Global data from Bank of America, investors injected nearly $10 billion into various types of stock funds in the week ended on Wednesday, including $3.3 billion flowing into technology funds.

Gerry Fowler, head of European stocks and global derivatives strategy at UBS, said:

"The initial panic reaction was excessive. The market will gradually regain confidence, but volatility is unlikely to fall completely to extreme low levels, and the market may have difficulty confidently reaching new highs."

Editor/Emily