MARKET VOLATILITY: Keeping the glass half full in the economy, stock market and locally
U.S. stocks just completed an astounding round trip between the worst performing opening days of the year ever, which erased nearly $1.5 trillion of market value in the first 10 trading days, to the largest quarterly comeback since 1933. Catalysts for the initial sell-off were plentiful, but the primary drivers were a continuation of downward price action in commodities and a broad reevaluation by investors of how much risk they were really taking in the financial markets.
Will commodity-dependent emerging markets drag down growth in the global economy? The questions were bountiful, and markets dropped precipitously. Until they didn’t.
As has happened so many times before, just as the pundits on CNBC began yelling that 2008 was here again, U.S. equities staged one of the best quarterly comebacks in stock market history. One important factor in this recovery has been an increase in the price of oil, as well as global central bankers who seem reluctant or unable to let their collective feet off the economic gas pedal. The stabilization of commodity prices in particular led to greater investor confidence in not only commodity companies, but also the financial institutions that supply them with capital.
For wealth managers engaged primarily to manage risk for their clients, recognizing the risks that sustained lower commodity and oil prices present, the U.S. economy is a huge beneficiary as consumers have more discretionary cash to spend. Look around Charlotte and you will certainly see restaurants full, shopping malls of eager buyers and on many a corner a new apartment building being built.
Corporations are also at an inflection point where they can no longer afford to cut expenses only to plow money into stock buybacks. Wage gains have been muted, but competition for labor in many sectors is heating up. Companies have the cash to spend and will need to do so if they have any intention of remaining competitive. We are seeing that in our local market as well. In 2015 our Queen City averaged year-over-year employment growth of 3.5 percent, adding an average of 3,000 net new jobs per month with 2016 off to a good start.
So keeping the glass half full and embracing volatility when it comes your way can be a good strategy. Even though it may feel like the worst times to get into the market in many cases they prove to be the best.
Steps To Take During Volatile Markets
Have a strategy and stick to it. Work with a wealth management firm that provides a focused investment discipline concentrating on diversification, long-term holding periods, tax sensitivity and risk-adjusted returns.
- Do not try to time the market. Attempting to time the market can be costly. If you invest on a regular basis you can actually benefit from volatile markets through a process of dollar cost averaging.
- Avoid media overload. Bad news is always easy to find. With all the noise we get on a daily basis, this can lead to reactionary decisions that can be costly. Stay focused on the longer term, be confident in the plan you have put in place.
- Don’t try and manage volatility on your own. Seek a professional advisor that can help you focus on your goals, objectives, financial circumstances and risk-taking capacity.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult a financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Content contributed by GreerWalker Wealth Management LLC, founded in 1997 as the wealth management affiliate of GreerWalker LLP, the largest certified public accounting firm founded in Charlotte. We are a Registered Investment Advisor offering comprehensive financial services and are committed to helping clients achieve their long-term life and financial goals. Content written by Donna L. Rasile, Senior Manager. For more information, contact Donna at email@example.com or 704-353-8281 or visit www.GreerWalker.com