July ended with a rush, but the start of August was brutal, with losses exceeding 4% across the board. It’s been a while since we've seen such a sharp, widespread move, and until the market finds some stability, we can expect continued volatility. On the bright side, viewing these big swings through a positive lens, they present potential opportunities.

Despite the prevailing uncertainty, there’s a palpable sense of fear in the market that could push the TOPIX even lower through volatility and systemic channels. It’s akin to watching a slow-motion replay of a spill in a crowded marketplace: you sense that there’s still potential for more disruption, but it's hard to gauge just how much more the situation can handle before everything collapses.

 

Stock market volatility has surged in recent weeks
 

Stocks plunged on Friday, capping off the most volatile period the market has seen in over a year by some indicators.

The S&P 500 dropped 1.8%, marking its third consecutive week of losses, the longest streak since April. Earnings season is in full swing, this coming week there will also be a massive amount of S&P 500 companies reporting their earnings so we will have more information about future guidance. 

The VIX spiked to its highest level of the year on Friday, following reports that the unemployment rate surged to 4.3% in July.

Recent market swings have been among the most extreme in nearly a year. Over the past 10 trading days, the S&P 500 experienced significant movements—rising or falling more than 1%—in six sessions, the most frequent since November.

By another measure, stock movements have been notably intense. The average daily swing over the last 10 days was 1.02%, the highest since March 2023.

4 top events that will affect the market volatility this week
 

Economic data: PMI data for China, EU, France, Germany, India, Italy, Japan, UK, US is due (S&P Global).
 

Economic data often drives market volatility by influencing investor expectations and market sentiment. Key indicators such as employment figures, inflation rates, and GDP growth can cause significant swings in stock prices and broader financial markets.

 

Indonesia: The country is set to release its Q2 GDP figures.
 

Indonesia's Q2 GDP figures can drive market volatility significantly. If the growth rate surpasses or misses expectations, it can lead to sharp market reactions. Stronger-than-expected growth may enhance investor confidence and reduce volatility, while weaker growth can cause concerns, leading to sell-offs and increased fluctuations. The performance of key sectors also impacts specific stocks and industries, contributing to volatility. Additionally, GDP data affects the Indonesian rupiah and commodity prices, with strong growth potentially supporting the currency and commodities, and weak growth having the reverse effect. Changes in GDP figures can also influence expectations about monetary and fiscal policies, further affecting market stability.

 

Japan: The Bank of Japan will publish its latest monetary policy meeting minutes.
 

The Bank of Japan's (BoJ) policy decisions can drive significant market volatility. Changes in interest rates can lead to immediate market reactions, with rate hikes potentially strengthening the yen but dampening economic growth, while rate cuts can weaken the yen and boost activity. Adjustments to quantitative easing affect liquidity and asset prices, with expansions often raising stock prices and contractions leading to sell-offs. Currency interventions by the BoJ can impact yen values and global trade. Additionally, shifts in the BoJ's economic forecasts and policy guidance can alter investor expectations, further influencing market stability and volatility.

 

US presidential race: Kamala Harris has said she will pick her running mate for the White House this week.

The U.S. presidential race involving Kamala Harris as a running mate can spark market volatility due to shifts in investor sentiment and policy uncertainty. Market fluctuations may stem from concerns about Harris's proposed policies on taxation, healthcare, and regulation, as well as the overall impact of the ticket's platform. Additionally, if there is uncertainty or controversy surrounding the choice of Harris's running mate, it can further heighten market volatility. Investors may react to campaign developments and potential policy changes.