Displaying items by tag: volatility
Cerulli Study Shows Demand for Financial Planning Increases with Volatility
According to research reported in the latest edition of Cerulli Edge, the demand for financial planning increases with market volatility. Cerulli said that investors experiencing market volatility for the first time are more open to receiving advisor guidance. The report noted that eighteen percent of investors working with an advisor do not have a financial plan in place, but they do consider one important. In light of that figure, Cerulli recommends that advisors consider re-introducing their financial planning services, especially during periods of high market volatility, since some clients may not be aware of their planning offerings. The research noted that advisors who offer financial planning find that their clients are better positioned to stay the course and remain calm when market performance declines, which enables advisors to develop stronger client relationships. Scott Smith, Director of Advice Relationships at Cerulli Associates, said the following, “Financial planning shifts the focus to progress made toward achieving goals rather than investment performance. This frames volatility in the context of a bigger picture, which helps clients feel prepared when market shocks arise.”
Finsum:Based on a new Cerulli research report, clients are better positioned to stay the course during market volatility if their advisors offer financial planning.
Quantitative Tightening Adding to Volatility
Yields on developed market government bonds have been soaring this year, as a result of higher inflation, sharp rate hikes, and quantitative tightening. The latter of which is what has traders nervous right now. The Federal Reserve is looking to increase the pace of winding down its nearly $9 trillion balance sheet, while the European Central Bank has also been looking to shrink its €5 trillion bond portfolio. Central banks built up their balance sheets with bond purchases to help provide a stimulus for the economy, but with the current high inflation, banks are now looking to sell those bonds. With the bond market already facing pressure due to the rate hikes, further quantitative tightening could make trading even more difficult by worsening liquidity and increasing volatility. The Bank of England has already been forced to delay its quantitative tightening due to turmoil in the UK bond market. That turmoil, which also spread to the U.S. and European bond markets, has only added to the liquidity and volatility concerns.
Finsum:An increase in Quantitative Tightening by central banks could lead to more volatility in the bond markets.
Market volatility: small caps, small stuff?
Due to their difficult to resist growth potential, many investors rock on small cap stocks – less than $1 billion market cap, according to talkmarkets.com.
Thing is, because of their volatility, which translates into factors such as a stepped up risk of bankruptcy, the stocks are surrounded by less than favorable sentiment. While a valid point of view, the perspective, seemingly, is at least a tad overblown. Over the long run, numerous small caps hit pay dirt.
That said, due to sometimes daunting wild swings in pricing, like a bad date, compatibility among conservative investors and small caps might be zilch. Some apps, y’know…
Meantime, what do factors such as the Ukraine war, escalating oil prices and interest rates sending U.S. equity markets into the blender this year add up to? Why, greater volatility, of course.
And compared to their large cap counterparts, there’s this, well, thing, about U.S. small stocks compared to their large cap counterparts: greater risk, according to oakfunds.com. While it might seem somewhat, well, illogical to propose ratcheting up the allocation of small cap stocks into your portfolio, it might serve as a buffer against these tumultuous times and offset harrowing times that could be linked with large cap stocks.
The whirlwinds of volatility
More interest rate hikes looming? Put it this way: look out below.
Or at least it’s exceedingly likely, according to cnbc.com. That’s because, even though year over year inflation receded slightly in August to 8.3%, from July’s 8.5%, it continues to hover well above the Fed target: 2%. Hence the likelihood of additional upticks.
Now, naturally, to pile on, with unemployment still low at August’s 3.7% mark, up from 3.5% in July, some clients of financial advisors are fretting over their jobs taking a hike.
Home affordability? No exception – especially in light of escalating mortgage rates and prices that are a little rich for the wallet, tamping down the potential pool of buyers.
Despite the whirlwind whipped up my volatility, with penny stocks, there’s still money to be made, according to marketweatch.com.
A catch, however: in the eye of a mercurial stock market, knowing how to invest isn’t easy. A few tips:
Do your research – especially in the land of penny stocks. Dig down and, prior to investing, learn all you can about the company.
Have a plan. In the clutches of volatility, have a plan and don’t deviate from it
Diversify your portfolio. Putting all your eggs and one basket. Nada. Don’t
Bond Volatility at Peak Pandemic Levels
According to an index that measures Treasury market volatility, bond volatility is at a level not seen since the peak of the COVID market crisis in March 2020. This is a worrisome sign that the Treasuries markets, which are considered a safe haven for investors, are not functioning as they should. For context, the biggest one-day move for the benchmark 10-year Treasury in 2021 was 0.16. This year, there have been seven days with larger moves. Liquidity is evaporating, which has caused the soaring volatility. A Bloomberg index is currently showing that liquidity in the Treasury markets is worse now than in the early days of the pandemic, while implied volatility, measured by the ICE BofA MOVE Index is near its highest since 2009. This is coming at a time when Bloomberg News reports that the largest buyers of Treasuries, including Japanese pensions, life insurers, foreign governments, and US commercial banks, are pulling back at the same time. Even Treasury Secretary Janet Yellen has expressed concern about a potential breakdown in trading, saying that her department is “worried about a loss of adequate liquidity” in the US government securities market.
Finsum: A lack of liquidity and a pullback in large-scale treasury purchases has triggered volatility not seen since March 2020.