Be Careful What Advice You Follow | The Investors Edge
By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Volatility Continues
Investors have been taken a bit by surprise with the recent downturn in the stock market, and that’s actually how it usually happens.
If everyone expects the market to go down, it’s probably a good sign that things will turn out better than expected. It’s when everyone assumes that stocks can go nowhere but up that you should be worried.
That’s the point we reached in mid-July with a level of market euphoria and elevated expectations that became a bit disconnected from reality.
You may have heard talk of the Japanese market crash and the yen and something called the carry trade as the reason the market dropped, but without getting super technical, the best explanation of why we were primed for a fall is that too many investors threw caution to the wind and took way to much risk, paying prices for many stocks that were simply too rich to be justified by their underlying fundamentals.
The current market volatility is actually quite normal, and typical of corrections that occur on average at least once, if not twice per year.
It’s important to keep in mind that the flagship U.S. stock index, the S&P 500, has simply pulled back to where it was at the beginning of May. With that being said, periods of volatility tend to last from anywhere from 3 to 6 months even if no recession develops. So investors should expect more bumps in the road ahead.
Featured Insight: Be Careful What Advice You Follow
When it comes to investing, there is no shortage of advice on offer. Everyone seems to have an opinion.
Investors are always looking for advice from experts that will help them make money.
All you have to do is scan some mainstream financial websites, headlines, or do some quick Google searches and you’ll find plenty of actionable intel.
One headline from Bloomberg earlier this week was “Hedge Funds Buying the Dip”. The market opened substantially higher that day with some investors probably piling in thinking that if the hedge funds are buying then it’s probably a good idea.
The stock market then proceeded to give back all its gains and then some, likely losing some of those folks some money.
My best advice is not to chase headlines, and definitely don’t take advice from sources that don’t know who you are or have your best interests in mind.
Looking Ahead: More Volatility Likely
I’ve been talking a lot about market volatility lately, and I’m likely going to keep talking about it for the foreseeable future
Stocks became significantly overvalued, economic data are slowing, election season is heating up, and there are wars brewing all over the globe. Did you think the market would keep going straight up forever?
The good news is that volatility presents opportunity. Opportunity to add value through prudent investment selection and asset allocation, and opportunity to put money to work at much more attractive prices. Don’t get too anxious though, this volatility is likely going to be with us for a while.
Copyright 2024 The Business Journal, Youngstown, Ohio.
