There is suddenly stock-market carnage on Wall Street, shattering what has been a protracted period of low volatility and a mostly uninterrupted climb toward the moon for stocks.
There was no clear-cut catalyst for the declines, which have come as the long-running rally fueled by improving corporate earnings and strengthening U.S. and global economic growth accelerated in January.
So, as the U.S. stock market encounters its first genuine bout of turbulence in years, with the Cboe Volatility Index notching its largest percentage surge in history and the Dow Jones Industrial Average and the S&P 500 index entering into correction territory on Thursday, defined as a drop of at least 10% from a recent peak, here’s what some experts recommend:
Don’t be scared
· Kristina Hooper, chief global market strategist at Invesco: “Don’t be scared, and don’t be impulsive. Be disciplined no matter what the market environment, and keep saving and investing according to your long-term plan,” Hooper says, noting that rising inflation, yields and volatility have combined for a unsettling recipe on Wall Street. Check out her full blog post here.
· Jeff Carbone, managing partner for Cornerstone Wealth: “We are reminding clients to keep this in perspective and look to be proactive not reactive to the markets at this time. It is a big emotional test of…risk tolerance; we all want the upside but remember there is downside risk and goals, risk tolerance and time frames must always lead one’s investment decisions.”
Don’t buy the dip—or at least just yet
· Michael Wilson, chief U.S. equity strategist at Morgan Stanley, on Monday cautioned investors not to buy the dip in the stock market given mounting worries about unfunded fiscal spending and a Federal Reserve that is behind the curve on interest rates. “When inflation is very low, rising inflation has a positive impact on equity valuations but with the Equity Risk Premium now close to full/fair value, rising inflation expectation may no longer be a positive for stocks, especially if markets start to think inflation is coming ‘unhinged.’”
· William Delwiche, investment strategist at Baird: “Widespread and excessive optimism left stocks vulnerable to increased volatility as bond yields have moved off their lows. While there is some early evidence that selling pressures are becoming exhausted, and stocks could soon see relief, the broad market is seeing meaningful deterioration.”
Trouble ahead, trouble behind
· Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management: “A sharp rise in bond yields triggered the start of a corrective phase for stocks. We think yields are likely to continue rising, which could put additional pressure on equity markets.” Rising Treasury yields, with the 10-year Treasury yield note hitting 2.88% on Monday, translate into higher borrowing costs for companies and can erode appetite for assets like stocks as climbing yields make government paper relatively attractive. Yields subsequently retreated as the stock-market carnage triggered a flight to safety that favored haven assets like Treasurys.
· Scott Minerd, global chief investment officer at Guggenheim Partners, says there’s upside left in this market via a series of tweets: