Market Jitters

Market jitters are what financial markets and individual investors experience when they are anxious about the state of the economy. It can be a sign that the stock market is overdue a pullback or correction, and can lead to a repricing of risk.

Market jitters is a phrase associated with turning points in bull markets or rallies, when unexpectedly bad economic data or corporate earnings increases market volatility. This is when indicators that signal trouble in financial markets start flashing red. Markets, as the saying goes, hate uncertainty.

For example, in the first half of 2018, the U.S. stock market experienced market jitters, because of fears that the Federal Reserve’s interest rate hikes and quantitative tightening might quash the economic recovery and trigger a sell-off in the bond market and the stock market. Adding to their fears was the flattening of the yield curve and the sudden widening in the LIBOR-OIS spread, which is a measure of stress in the banking sector. The result of these market jitters was a big spike in VIX, the CBOE Volatility Index for the S&P 500, otherwise known as the "fear index."

When markets experience jitters it can be a sign they are overdue a correction. So investors take stock and consider shifts in tactical asset allocation or rebalance their portfolios to bring them back to their desired strategic asset allocation. As a result, market jitters can lead to big flows into and out of different global asset classes, as risk is repriced.