Halloween Spooks the Market | The Investors Edge
By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Halloween Spooks the Market
The stock market got a spooky surprise on Halloween as investors ran scared from risk. The formerly high-flying tech sector bore the brunt of the damage, but the selling was relatively broad-based.
Typical safe-havens like utilities and consumer staples outperformed with investors looking for places to hide.
Presumably, the catalyst for the selloff was a cautious outlook from some of the largest and most important tech players – most notably Microsoft and Meta Platforms, formerly known as Facebook.
Although those companies and most others have been beating earnings estimates for the last quarter. they’re giving investors a bit of fright regarding what may be in store for the coming quarters.
Election jitters may be another cause of the selling pressure this past week, and I’ll talk more about that shortly.
It’s fun to talk about the short-term, but what really matters is whether or not future earnings estimates will continue to head lower, as they have been in recent weeks, or whether they will start surprising to the upside as lower interest rates from the Fed begin to kick in. At the moment, some caution is likely warranted.
Featured Insight: The Volatility Gauge
Speaking of scared investors – there’s actually a gauge for measuring just how scared investors are – It’s called the volatility index or VIX.
When investors are worried about a market decline, they buy insurance in the form of put options, which drives up the price of the insurance as measured by the volatility index.
Typically a VIX reading above 20 is considered elevated, a reading above 30 is considered very high and a reading about 50 is downright panic. Below 15 would be considered relative calm.
Right now, the volatility index is around 22 or 23 which is somewhat elevated, but by no means extreme.
Although it may seem counterintuitive, the more scared investors are, the more opportunity there is in the markets. Warren Buffett has famously said, be fearful when others are greedy and greedy when others are fearful – the VIX gives you a gauge to measure just how greedy or fearful investors are.
Looking Ahead: Election on Deck
There’s an election this coming week – did you know that?
It seems every election is billed as the most important election of our lifetimes, and given the heated rhetoric of this election, that is once again the media’s claim on the gravity of this one.
As I just mentioned, the volatility index is elevated as investors try to hedge potential election related volatility, and perhaps there will be some volatility around the election, but for longer-term investors it makes sense to stick to a disciplined strategy rather than trying to predict the short-term market movements.
If elevated fear is causing stocks to go on sale, it might be an opportunity to put some of the cash on the sidelines to work – just make sure it’s going into things with rising earnings estimates. Those estimates will tell the story of the impact of public policy on stocks, sectors, and the market overall.
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