Will Markets Continue Their Volatility This Week?

With the ring of the opening bell tomorrow, Wall Street approaches another huge earnings week, still licking its wounds from Friday's horrendous showing. On the 25th anniversary of the worst day in stock market history, Black Monday, the Dow Jones Industrial Average (INDEX: ^DJI  ) shed more than 1.5% to close down more than 200 points at 13,343. Lest investors forget, though, the index was roughly even for the week, actually closing with gains of 0.1%.

The question remains whether markets will be able to recover from the steep one-day decline, which was the worst the market had seen since June. The retreat was due almost entirely to disappointing earnings reports from a number of big names. A trifecta of underwhelming results hit the Dow on Friday, with McDonald's (NYSE: MCD  ) , General Electric (NYSE: GE  ) , and Microsoft (Nasdaq: MSFT  ) spearheading the decline. Microsoft and GE especially were hit by currency headwinds caused by a stronger dollar, while Microsoft reported lower-than-expected Windows sales.

Ahead of the November elections, the markets may continue to experience volatility because of an uncertain political climate. The presidential race is heating up, and all eyes will be on the two candidates Monday night, as the final debate is held in Boca Raton, Fla.

But before the candidates can square off, Caterpillar (NYSE: CAT  ) is slated to set the tone for the Dow this week, as the global machinery company reports its results before the bell. Still, Caterpillar is far from the biggest to report this week.

Investors will get a good feel for the economics of the technology sector, as both Facebook (Nasdaq: FB  ) and Apple (Nasdaq: AAPL  ) come out with earnings. Both companies hope to improve upon the standard set by their peer Google (Nasdaq: GOOG  ) , which botched its earnings release on Friday, reporting accidentally in the middle of the trading day. The stock lost 8% and was forced to discontinue trading for a number of hours in the wake of the commotion.

Apple reports Thursday, just two days after it's expected to announce the new iPad Mini.

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John Divine owns shares in Apple. The Motley Fool owns shares of Apple, Facebook, General Electric, Google, McDonald's, and Microsoft and has options on Facebook. Motley Fool newsletter services recommend Apple, Facebook, Google, McDonald's, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 21, 2012, at 9:26 PM, thogshead wrote:

    About "Ahead of the November elections, the markets may continue to experience volatility because of an uncertain political climate," if anyone is interested knowing how and when VIX volatility will change, Volatility Research has come up with a pretty good way to predict VIX “fear guage” volatility using NYSE VXX:

    http://www.sites.google.com/site/VolatilityResearch/

    The klinker in this rally-woodpile is VIX volatility, and this rally may be a house-of-cards.

    We’re in the lull before the Perfect Storm.

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