Displaying items by tag: volatility
One thing steady about the market: volatility
Volatility? For at least the immediate future, when it comes to the market, it seems to about the only stable thing going.
Volatility’s on pace to remain on the high side – with the volatility index averaging about 25, according to jpmorgan.com. As the Fed over squeezes into weaker fundamentals, the S&P’s expected to again test last year’s lows.
“In the first half of 2023, we expect the S&P 500 to re-test the lows of 2022 as the Fed overtightens into weaker fundamentals. This sell-off combined with disinflation, rising unemployment and declining corporate sentiment should be enough for the Fed to start signaling a pivot, subsequently driving an asset recovery and pushing the S&P 500 to 4,200 by year-end 2023,” said Dubravko Lakos-Bujas, global head of Equity Macro Research at J.P. Morgan.
“We all know it’s been a tough year for investors. We’ve been through monetary tightening and persistent inflation across global economies,” said Ryan Murray, CFP, with Vanguard. “We’ve seen an unprecedented period of volatility in the bond market, where such fluctuations are highly unusual.”
Give the inherently unpredictability of markets, in the face of extreme volatility, shucking aside your long term plan will certainly cross the minds of investors, he noted. “But it’s important not to let emotions get the better of you or push you to make a reactive decision that could put your hard-earned savings at risk.
Investors Expecting More Market Volatility
Investors are bracing for more market volatility as traders buy up hedges at the fastest clip since the start of the Covid-19 pandemic. According to Cboe data, call options betting that the Cboe Volatility Index (VIX) will rise are the highest on an average day in February than at any time since March 2020. After not much movement for months, the VIX, which is also known as Wall Street’s fear gauge, rose above 23 last week, its highest level since the first few trading days of the year. Readings below 20 usually signify complacency, while readings above 30 signal investors are looking for protection. The increased demand is due to two reasons. First, when stocks rebounded at the start of the year, investors jumped back into the market, restoring a need to hedge their portfolios. In addition, recent economic data increased the likelihood that the Fed will be forced to continue raising interest rates to slow inflation, stalling the stock rally. The S&P 500 saw three consecutive weeks of declines, which was capped by a hotter-than-expected reading on the personal consumption expenditures price index, the Fed’s preferred gauge of inflation. The CME Group Volatility Index, which tracks volatility in the Treasury market, also recently reached its highest levels in more than a month.
Finsum:Investors are bracing for more volatility in the market as call options betting that the VIX will rise are at their highest mark since the start of the COVID pandemic.
SSGA Survey: Investors Remain Confident in Advisors’ Ability to Navigate Volatility
There’s no question that 2022 was a tough year for investors, but even with all the volatility, investors remain confident in their advisor’s abilities. That is according to the results of State Street Global Advisors’ ETF Impact Survey: Advisor Edition. The survey found an overwhelming majority of investors who work with an advisor remaining confident in their insight and guidance. The percentage of U.S. investors indicating they value their financial advisors’ knowledge and guidance even more during uncertain times held steady at 89% compared to June 2022, when it was 91%. In addition, 81% indicate their advisor has helped them remain confident during this period of rising inflation and market volatility, compared to 86% in June. The survey also revealed that investors are listening to their advisors and not requesting panic-induced trades as 57% of U.S. investors plan to keep their money ‘as is’ and stick to their long-term strategy. Brie Williams, head of Practice Management at State Street Global Advisors had this to say about the survey results, “Helping clients remain confident and committed during times of volatility can be a challenge for advisors whose clients may have a kneejerk reaction to abandon their investment strategy if markets get choppy. Our survey found 86% of investors have discussed market volatility with their financial advisor and 83% say their advisor has informed them of how volatility will affect their long-term financial goals.”
Finsum:A recent SSGA survey found investors remain confident in their advisors’ guidance amid heightened market volatility and rising inflation.
Private Equity Firms See Opportunity Amid Market Volatility
With market volatility still a concern among clients, private equity firms are positioning themselves as an option for advisors looking to minimize the impact of volatility in their client’s portfolios. Steve Brennan, head of Private Wealth Solutions at Conshohocken, Pennsylvania-based Hamilton Lane, told Financial Advisor magazine, “A benefit to a private equity fund is that it is a long-term investment vehicle that gives an investor an extended period to invest their money and protect it from the turbulence of the markets.” Private equity proponents say that the lower volatility typically outweighs the negatives of private equity, including high fees and illiquidity. Brennan said “The time horizon for investors in the private markets is ... a much longer time period so you’re not seeing the volatility in the private markets that you would see in the public markets.” Alexis Weber, chief investment officer and founder of PM Alpha told the magazine that a client’s private equity allocation should be fluid. He suggested a range of 5% to 20%, but also cautioned advisors that it depended upon the client’s risk tolerance. He also mentioned that private equity can be a benefit to an advisor looking to distinguish themselves from their competitors. He stated, “Really having the right level of allocation to these instruments allows them to differentiate their services and their portfolio construction approach from other peers.”
Finsum:Private equity firms are positioning themselves as an option for advisors looking to minimize volatility for their clients as well as differentiate themselves from their peers.
Stocks Getting a Boost from Falling Bond Volatility
After a tough year in the equity markets, this year is shaping up to be a better year for investors as the S&P 500 is up over 7% through Monday’s close. This is happening amid numerous recession predictions across Wall Street. The rise in the stock market this year can be attributed to the growing sentiment that the worst is over when it comes to inflation and rising interest rates. In fact, a gauge of future volatility in the U.S. bond that tracks interest-rate turbulence is now showing an increasingly encouraging trend that is supporting the optimism in the market. The ICE BofA MOVE Index is extending a slide that started in October. It has now fallen to lows not seen since March when the Fed started its aggressive interest-rate increases. The index continued to fall after the Fed’s latest meeting on Wednesday, where according to billionaire investor Jeffrey Gundlach, Fed Chair Jerome Powell “didn't fight back in his speech Wednesday against market expectations that the Fed will soften its rate policy later this year.” The Fed raised benchmark borrowing costs by only 25 basis points, the smallest increase since last March. Over the past year, the trajectory of the S&P 500 has moved inversely to the MOVE index, showing the market's sensitivity to the interest-rate outlook.
Finsum:The stock market has rebounded this year as the ICE BofA MOVE Index, which measures bond volatility, has been sliding since October.