After suffering a serious post-Fed bashing, stocks could trade with both high volatility and high volume on the final quadruple witching Friday of the year.
The market sold off sharply into the close Thursday, with the Dow ending down 253 at 17,495 and the S&P 500 off 31 points or 1.5 percent to 2041. The twin culprits of falling oil prices and a stronger dollar reversed the previous day’s rally, along with concerns that the Fed may be too optimistic about raising rates.
Bond yields fell with the 10-year at about 2.22 percent, and the 2-year at 0.98 percent. Yields move inversely to price. West Texas Intermediate oil futures settled down 1.6 percent to $34.95 per barrel, just above the low of $34.53 per barrel reached on Monday. While that move seems tiny, oil prices rose nearly 10 percent off the Monday low before falling back down again.
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“We’ve got a quadruple witch tomorrow. People are nervous today in advance of triple witching Friday,” said Leo Grohowski, chief investment officer with BNY Mellon Wealth Management. Quadruple “witching” expiration is the quarterly expiration of stock and index options and stock and index futures.
Thursday’s sell-off was “a little bit of a hangover” after Wednesday’s late-day rally in the wake of the Fed rate hike announcement, Grohowski said.
Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, said investors are concerned that the Fed’s interest rate forecasts, also released Wednesday, were too aggressive. “People aren’t expecting the Fed to go four times in 2016. Fed officials say it, but the market doesn’t seem to believe it. … We had to drag people into believing the Fed was going to go and now that they have gone, each new rate hike is going to be a battle. People don’t believe the economy is strong enough to withstand that many hikes,” he said.