Tags: JPMorgan | stocks | Medium | Swings | 2011

JPMorgan: Stocks to Have ‘Medium’ Swings in 2011

Thursday, 09 Dec 2010 08:08 AM

U.S. stocks will have a “medium level” of volatility next year as the economic recovery and Federal Reserve stimulus offset risks tied to Europe’s debt crisis and higher interest rates, JPMorgan Chase & Co. said.

The Standard & Poor’s 500 Index will have a six-month historic volatility, a gauge of past swings, of 18 next year and will probably range from 15 to 20, equity derivatives strategists led by Marko Kolanovic and Amyn Bharwani wrote. Historic volatility for the benchmark averaged 18.85 this year, falling as low as 14.30 and peaking at 22.54, according to Bloomberg data.

“Evidence continues to build that the global economy is regaining momentum,” Kolanovic, who leads the No. 2 equity- linked strategy team in Institutional Investor’s 2010 survey, and Bharwani wrote.

“While projected tightening of credit spreads and the anticipated appreciation of equities point to a lower level of volatility of about 15 percent, asset prices may have elevated volatility as a result of changes in monetary stimulus and interest rate volatility.”

JPMorgan economists estimate that the U.S. economy will expand in the four quarters of 2011 at an annualized rate of 2 percent, 3 percent, 3 percent and 4 percent, the report said. Historic volatility has averaged about 15 percent during periods of 3 percent expansion in gross domestic product, the New York- based strategists wrote.

Historic volatility, also known as realized volatility, is one of the main factors used to estimate implied volatility, the key gauge of options prices. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.

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U.S. stocks will have a medium level of volatility next year as the economic recovery and Federal Reserve stimulus offset risks tied to Europe s debt crisis and higher interest rates, JPMorgan Chase Co. said. The Standard Poor s 500 Index will have a six-month...
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2010-08-09
Thursday, 09 Dec 2010 08:08 AM
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