After a hideous open that took the Dow down by 770 points and dropped the S&P 500 Index nearly 3%, the financial news media could be forgiven a little panic. But after a rapid flush, stocks began to turn around at about 8:30am PST. And by the end of the trading session, they’d nearly clawed their way back to even. The Dow ended down 79 points and the SPX fell .15% for the day. Real estate, communications services, technology and consumer discretionary sectors ended in the green. The VIX Index—a common measure of fear among traders—spiked to 26 before tumbling back to 21. Gold, typically a safe-haven in tough times, initially rose but fell flat by the end of the day. And the 10-year Treasury yield, which dipped to 2.85% early in the session, ended at 2.90%.

What gives? Today’s volatility was driven by not by fundamentals—economic growth, business investment, consumer spending—but by automated trading algorithms run by hedge funds and the like. Once again, the machines were in control. And while they blamed the arrest of a high-profile Chinese corporate executive for the stock market decline, this headline was more likely an excuse to create knee-jerk volatility.

Are we out of the woods? Absolutely not. Trade tariffs and Fed policy fears are driving the market, and short-term trading firms are happy to push volatility higher on every headline. First, we’ll have to wait another 90 days to get some clarity on trade. Next, the Federal Reserve’s December policy meeting, scheduled for the 19th, may or may not feature an interest rate hike. And, of course, “hedge funds gone wild” (as Jim Cramer likes to say) have no incentive to clean up their behavior. Some very highly respected investors are calling for the SEC to re-institute rules that would reduce their ability to compound volatility on days like this. But that’s not going to happen, at least in the foreseeable future.

All the while, things aren’t as bad as we’re being led to believe. In an interview today, JP Morgan Chase CEO Jamie Dimon said the trade war is not yet having a major impact on Corporate America. Is it true that trade uncertainty is the main culprit behind the stock market correction. And some businesses will have to adjust their supply chains. But JP Morgan, as a nationwide lender, hears from a lot of businesses and so far the message isn’t terribly negative. Out of 100 companies, 3-5 companies are now seeing a negative effect. Another 5 companies are “worried about it.” But the bulk the bulk of US businesses “say it doesn’t affect them.”

Technical analysts are saying we may even view today’s crazy market action as a near-term positive. The S&P 500, which fell to 2,621 early in the session, is in the process of re-testing its October 29th low of 2,603. By falling close to that level and then violently turning higher, it may signal an temporary exhaustion of selling. We’ll see tomorrow.

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