Volatility is Back

The swings of the stock market recently have been as much fun as a roller coaster ride for somebody who suffers from dramatic motion sickness. The ups are huge, and the downs are even worse. The market moved into correction territory faster than anytime in history, only to be followed by 2 of the biggest point increases the stock market had ever seen in the same week. (March 2nd and March 4)

However, the days in between have also been big drops. The market cannot seem to find it’s direction. While the Coronavirus is certainly the biggest catalyst for the turmoil, other factors are also weighing on the ups and downs we currently see.

Let’s address the Coronavirus first. Every day we get new news about this virus. And so far, none of it has been a confidence builder for investors. Countries have shut down schools, sporting events will be played in front of empty crowds, community outbreaks are becoming headlines and international economies are shutting down. The fear is also reaching into our daily lives, as staples such as toilet paper and hand-sanitizer are disappearing from retailer shelves as consumers fear for the worst. Also today, California has declared a state of emergency as it sees it’s confirmed cases moving up daily in such a populated area. So much about this virus is unknown, and I just finished reading an article about the virus my be mutating, making the ability to contain the virus even more difficult. How long will this go on? Who knows.

Other factors are also feeding into this volatility. Let’s start with the current election coming up. Wednesday’s stock market increase must, in some part, be credited to Joe Biden’s ‘Super Tuesday’ performance. Wall Street is terrified of what a Bernie Sanders presidency would do to the wealth of the country and to the companies who thrive in a capitalistic environment. Biden’s surge gave some relief that the Sander’s path to the presidency would be much more difficult than if he had just ran away with the delegates Tuesday night. Sanders did win the biggest prize of California, but southern states and other areas who do not lean far left showed Bernie’s message does not resonate with the entire country. Should be a very interesting couple of months while the Democrats decide who will face Trump in the next election.

The FED came out this week with an emergency rate cut of 50 basis points. Lower rates have usually helped prop up stock prices, and with the fear of Coronavirus being the top headline, they tried to relieve that stress with swift action. However, the market interpreted this move differently. This was the first Emergency Meeting rate cut the FEDs have done since 2008. The market took this cut as desperate, and the 50 basis points was double the amount of the FED’s previous rate cuts. Had they waited a few weeks for their normally scheduled meeting, or even just cut the customary 25 basis points, the move would have seemed less worrisome. Their move came off as fearful, while trying to express their message was that the US economy and fundamentals are still strong. The market was able to read between the lines and see the FED is concerned of the impact of the Coronavirus to both domestic but also the global economy.

In stable markets, volatility is usually very low. When stability goes away, we see the swings that we have been seeing lately. Investors are making their decisions based on the headlines they are reading for the day. News driven moves are ones made out of emotion or fear versus fundamentals. The market has been overpriced for some time now, so it’s not surprising to see investors ready to exit their riskier positions and wait for the things to calm down. Who knows what tomorrow’s headlines will bring, but if it’s more bad news, you can expect to see investors become less attached to their portfolios and lock in their values when they can. With so many unknowns right now (election, Coronavirus, FED actions etc) we would expect the volatility to remain heightened for the time being.

If the market swings have you worried about your account, please feel free to give us a call @ (303) 770-3030 to have a risk evaluation done on your portfolio. If you would like to see our previous newsletters talking about the risks currently facing the stock market (before the Coronavirus) please feel free to visit our website at http://www.valuefinancialadvisers.com.