Volatility in financial markets is expected to ramp up in 2024 as the election year unfolds, following a week of rollercoaster swings for investors. The SPDR S&P 500 ETF Trust (SPY) experienced a remarkable start to the year, soaring up to 19.5% by mid-July at a historic pace. However, the index subsequently retraced slightly as investors called a top on the Big Tech trade.

On August 2, the release of a disappointing July jobs report by the Bureau of Labor Statistics renewed recession fears, resulting in a 1.86% decline in the S&P 500 that Friday. The following Monday, the index plunged 2.91%, marking its largest fall since September 2022. This decline coincided with the collapse of the yen carry trade and a deepening of recession anxieties.

The market began to show signs of recovery on Tuesday, with the S&P 500 rising 0.92%, only to fall back by 0.67% on Wednesday. Thursday's trading session brought some relief, as the index surged by 2.31%, achieving its best day since November 2022. The NASDAQ Invesco QQQ Trust (QQQ) also experienced significant swings during this period.

According to data from Yahoo Finance, periods of wild gains and losses are not unusual in the markets, often occurring alongside macroeconomic uncertainty. The recent price action is particularly noteworthy due to the sustained period of stability witnessed from late 2022 onwards.

Looking back at historical precedent, the onset of the COVID-19 pandemic in 2020 stands out as a striking example of frenzied buying and selling. In that period, the S&P 500 went through tumultuous fluctuations, experiencing both corrections and significant gains.

Likewise, from April to December 2022, the market displayed similar price action, albeit to a lesser extent. This behavior coincided with rapid hikes in the federal funds rate and the inversion of the yield curve. Another comparable example is the 2008 financial crisis, where markets suffered substantial daily losses and gains following the collapse of Lehman Brothers.

What lies ahead for the financial markets remains uncertain. The lesson learned from previous volatile periods is that volatility tends to breed more volatility. In the coming weeks, investors will closely monitor macroeconomic indicators, corporate earnings, the Federal Reserve's interest rate decisions, and geopolitical conflicts. Any unexpected developments, positive or negative, could result in dramatic price action.

Adding to the uncertainty is the fact that 2024 is an election year, which typically introduces additional volatility into the markets. As the November elections approach, it is expected that the news cycle will intensify, contributing to the already fast-paced summer news cycle.

Overall, investors should prepare for a potentially bumpy ride in the financial markets, as macroeconomic uncertainty, significant market events, and the forthcoming elections contribute to increased volatility in the year ahead.