December 10, 5:00 pm EST

We had another big swing in stocks today, from down about 2%, to finish UP on the day.

On Friday we talked about the rise in market volatility, and what’s driving it.

It’s regime change.  For the better part of a decade we had an economy driven by monetary stimulus (and loads of central bank intervention to absorb any potential shocks to markets).  And since the election, we now have an economy driven by fiscal stimulus and structural reform.

With the idea that we now have a test to see if the economy will stand on its own two feet, without the benefit of central bank intervention, market volatility is up — an indicator of the uncertainty outcomes.

But as I said Friday, with dramatic change, the pendulum can often swing a little too far in the opposite direction at first (from little-to-no volatility to a lot, in this case).

As it stands, stocks are now down about 1% on the year.  In normal times you would see other alternative asset classes (to stocks) performing well.  Bonds would be the obvious winner — but if you owned 10-year notes you would be down about 3% on the year (about flat after the yield).  When stocks are down, and uncertainty is rising, gold tends to do well.  Not this year.  Gold is down 4.5% on the year.   What about real estate.  The Dow Jones Real Estate index is up, but small (+1.8%).  Among the best investments of the year is cash.  If you owned 1-month T-bills all year, you would be up close to 2%.  I suspect this dynamic of little-to-no return asset class alternatives will change very soon.