Market volatility is caused by uncertainty. Today the coronavirus is ravaging America and the world. The twin threats of a massive death toll and a severe and long term recession have rightfully spooked many investors. And, stock market volatility is the highest since the early days of the 1929 stock market crash. We have posed the question, how far could stocks fall? A close look at the market crash that started in 1929 shows that it did not end until three years later in 1932. Incidentally, the market bottom and beginning of a long and painful recovery was that fall when Roosevelt was elected and the US government started creating jobs with projects like the WPA. In the shorter term, we suggest that you beware of volatility in your investments as the market oscillates between hope and despair.
Beware of Volatility in Your Investments
Market Watch provides some useful insights in their article about stock market volatility.
Talk about a tough trading environment.
Analysts at Bespoke Investment Group, as illustrated in the tweet below, noted Tuesday that the S&P 500 index’s SPX, 2.07% average absolute daily percentage change over the past five weeks has been plus or minus 4.8% – a historic achievement.
“That’s higher than we saw at the height of the financial crisis, after the 1987 crash, and in the late stages of the Great Depression. The only time the S&P’s average daily move over a five-week period was greater was after the Crash of 1929,” the analysts said in a note.
They go on to say that upswings, as well as downswings, have been responsible for the higher volatility. Although some might be able to or be lucky enough to make money on the continual swings in the market, most investors will be wise to avoid trying to avoid the market for short term investments. In fact, many investors will be wise to take a look at our article about how to invest for a ten year recession!
What Can You Predict about Your Investments in This Volatile Market?
Our greatest concern is that we may have only begun the slide of the market. Factors that will affect how long this lasts will be the duration of the pandemic, if it returns from time to time, and how severe it will eventually be for the first part. Then the question will how badly does this hurt the economy, which companies and individuals will be taken down by debt, and the degree to which the Federal Reserve and congress work to alleviate the current economic situation and stay ahead of the forces that would destroy the economy in the USA and around the world.
Traders are reacting to hope of things getting better in a hurry as well as dreading that things will be a lot worse.
All Investments Are Not Equally Volatile
The VIX volatility index is looking at the overall market. But, not all stocks are as volatile as the S&P 500 or the Dow. We recently mentioned dividend stocks that hold the promise of a refuge in the storm. It may be difficult deciding when the time to invest will be but there are investments that are not at the same risk as the rest of the market and these may be the best choices now and as a recovery starts.