Volatility roars back after months of calm
Economic fundamentals should ease anxieties
Whoa, what was that? After months of relative calm, Wall Street has been jolted by a sudden run of turbulent trading.
The swoon wiped more than 1,300 points from the Dow Jones Industrial Average over two days and dragged the benchmark S&P 500 index down more than 5 percent. The VIX index, which measures how worried traders are about a decline in stocks, climbed Thursday to its highest level since February, when the S&P last had a correction, or a 10 percent drop. What now? Experts say this new eruption of market volatility should not be surprising, especially after the long stretch of relative calm investors have enjoyed.
Over the summer, traders set aside worries about the escalating U.S.-China trade dispute and instead focused on more encouraging developments: solid economic growth and record corporate earnings.
It helped that stocks were on the rise — the S&P 500 hit an all-time high just four weeks ago.
So after several months of gains, a pullback would be expected, said John Lynch, chief investment strategist at LPL Research.
“Volatility is also not to be feared, but embraced, as varying data points will cause bouts of market anxiety. But remember that fundamentals are still strong,” Lynch said.
The economy is indeed quite strong by many measures — consumer spending is growing, unemployment is low and manufacturing surveys are near record levels. And many experts say that is more important than the market’s daily ups and downs.
Having bonds and equities selling off may feel like the worst of both worlds, but the market’s shift isn’t as bad as it might seem, said Michael Crook, head of institutional strategy at UBS Global Wealth Management. He notes that the S&P 500 is basically back to where it was during the summer, and only down slightly from its all-time high.
“That’s very normal volatility, and while it has been acute — like all market drops — it only erases a few weeks of gains,” Crook said.
After a harrowing week for financial markets, investors will look for solid corporate earnings reports and healthy economic news next week to forestall any volatility.