By Jacob Sonenshine

The market is finally catching on to what individual stocks have known for a while now -- volatility is becoming a problem for investors.

That was clear this past week. After nine weeks of gains, the S&P 500 index fell 1.6%, on pace for its worst showing since the week ended March 27. The Nasdaq Composite, down 3.3%, suffered its worst week since the one ended April 3 as Big Tech and chip stocks tumbled. Only the Dow Jones Industrial Average, up 0.4%, managed to squeak out a gain. Despite the S&P 500's decline, the Cboe Volatility Index, or VIX, still sits at 18, up 20% for the week but still near its three-year average.

The volatility was inspired in part by a strong jobs report -- hiring jumped to 175,000 in May, and numbers for the previous month were revised higher -- forcing the market to price in a better-than-50% chance for a interest-rate hike by the Federal Reserve's October meeting. Jobs weren't the only factor, however. Broadcom fell 13% on Thursday after reporting record sales because its guidance fell short. CrowdStrike Holdings' earnings, meanwhile, set off profit-taking in software, which had been rebounding from the so-called SaaS-pocalypse.

The rise in volatility didn't come out of nowhere. The Cboe S&P 500 Constituent Volatility Index, a market-cap-weighted index of expected volatility in the index's individual stocks, closed at its highest level in more than a year last week, suggesting that individual stocks were already reflecting greater risk -- to the downside and upside -- than before. We saw that in Marvell Technology, which gained 33% on Tuesday after Nvidia CEO Jensen Huang said it could be the next $1 trillion company; Victoria's Secret, which jumped 51% after reporting better-than-expected earnings; Alphabet, which slumped 3.9% given its large stock offering; and Calvin Klein owner PVH, which tumbled 20% on Thursday.

Yet despite the week's declines, the market is more likely to see it as a short correction than a major selloff. The reason: The wild moves in individual stocks suggest that investors aren't selling everything, but shifting into better opportunities. "It's a good sign that money doesn't leave the market -- it rotates into other areas," says Keith Lerner, chief investment officer at Truist.

The wild card remains the Fed. Chairman Kevin Warsh will communicate his plans for broader Fed policy and rates at the end of the central bank's meeting on June 17. He is, no doubt, in a tough spot. President Donald Trump wants rate cuts. The market sees rate hikes as the next move.

The May consumer-price-index report, due on June 10, is expected to show inflation increasing by 4.3%, according to FactSet. It could provide solace if it comes in weaker than expected, or be a scourge if it continues to heat up. Higher rates, after all, would cause investors to reassess the valuations they place on stocks, particularly the riskier growth companies that have spurred the market to record highs.

If you can't stand the heat, better get out of the market's kitchen. But just remember, tolerating a little heat is always part of owning stocks.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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(END) Dow Jones Newswires

June 05, 2026 21:30 ET (01:30 GMT)

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