Market volatility (^VIX) has slowly crept back up in 2024 as stocks (^DJI, ^IXIC, ^GSPC) come off of a rocky first week of the new year.

Commonwealth Financial Network Chief Investment Officer Brad McMillan joins Yahoo Finance's Rachelle Akuffo to detail "the fear" the stock market is having to process while pricing in interest rate cutes by the Federal Reserve.

"What we're looking at is something we've seen several times during this cycle — the markets saying the Fed is going to cut rates. The Fed says no we won't. The market talks itself into believing it, then the Fed says 'No,' and the market sells-off," McMillan explains.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

RACHELLE AKUFFO: Well, could volatility be creeping back into the market. The volatility index was at its lowest level since the pandemic to end 2023, but a week into the new year, and the VIX is up nearly 5%. So how worried should investors be, and can we expect more volatility from here?

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Let's bring in Brad McMillan, Commonwealth Financial Network chief investment officer. Thank you for joining us this morning. So as we're looking at this volatility to start the year, what are you making of it seeing, especially how strong some of these defensive sectors are to kick off the year?

BRAD MCMILLAN: I think there's a lot of fear out there. And when you look at what's going on, the market is trying to process several different things. First of all, there's growth. Are we going to have a recession? It doesn't look like it. You look at the jobs reports, they're coming in strong. We don't have recessions when people are working.

Second of all is interest rates, but that depends on inflation. Is inflation going down to 2%? It doesn't look like it. So there was an expectation at the end of last year that the Fed was going to cut rates, maybe six, maybe seven times. And the Fed said three, and as we get the data, people are saying, well, maybe we're not going to get those cuts and maybe we should be cautious and pull back. And I think that's exactly what we're seeing.

RACHELLE AKUFFO: And so Brad, how do some of these mismatches factor into this? You have the Fed, you know, trying to essentially hedge their bets, but still saying, look, we're not ready to cut rates just yet. Markets charged ahead. Now we're seeing some of that more sobering effect.

You have consumers not feeling good about spending, still spending rather robustly, although starting to pull back slightly. If you're an investor, how do you view these mismatches, and where are the opportunities to be had?