If you have noticed that the financial markets have been reacting strongly to recent news events, you are correct. This has been the case lately. The markets were eagerly anticipating Fed Chair Powell's speech at the Jackson Hole event. Prior to that, there was a lot of anticipation surrounding the Q2 report of a prominent player in artificial intelligence. Charles Payne, CEO & Principal Analyst at WStreet.com, noted that he couldn't recall the last time there was so much buzz surrounding an earnings report.
During periods of low trading activity, such as in August when many investors are away on vacation, the market is susceptible to sudden and sharp movements. However, with the start of the school year after Labor Day, most market players will be back at their desks. This does not necessarily mean volatility will decrease as the markets will have plenty of concerns to contend with in September and October before turning their attention to year-end.
The accompanying chart shows that the total amount of cash held in reserve has increased to almost $1.6 trillion. This suggests that many investors were spooked by the events of 2022 and have yet to fully recover. Currently, this cash is invested elsewhere due to high-interest rates. However, it is likely that rates will begin to decline at some point next year. What will happen if this large sum of money starts searching for a new investment opportunity?