Stock Market Volatility is no Reason to Stop Investing, Strategists say

The volatility of the stock market has raised several concerns regarding the profitability of the five-year bull market. However, experts and strategists believe that a big slump is not a good enough reason to abandon stocks. Last week, oil prices and global stock indices fell due to a slowdown in global growth. In addition to this, news about the Islamic State fighters and the Ebola situation has made investors more cautious than usual.

Strategists believe that these are only a few of the factors that have contributed to the situation of the current five-year bull run market’s stagnation. The U.S. economy is currently recovering, and corporate earnings are on the rise.

In addition to this, strategists also said that investors should take advantage of all opportunities of a stock sell-off. After making a new record, the Standard & Poor’s 500 stock index fell by 7.4 percent. This pushed investors to safer bonds, upped their prices and dropped the yield on the Treasury note to its lowest value in the last 12 months.

Erik Davidson, deputy chief investment officer at Wells Fargo believes that changes in financial markets pose a great opportunity to balance and portion stocks held by investors. Truth be told, many investors allocated a lot of their portfolios to bonds while staying away from stocks, during the recession. Although this strategy has worked for roughly 7 years, in 2013 they reported a 2% loss. This might result in more money being invested into stocks.

“We are suggesting that investors who have been on the sidelines use this as an opportunity to get into the (stock) market.” – Davidson

The yield on the benchmark 10-year Treasury fell by 1.89% on Wednesday, when investors sold their stocks to purchase bonds. Davidson believes that this is nothing but a normal slump, not a market crash. As a matter of fact, the recent volatility of the market is viewed as a natural part of investing, because the stock market reports slumps every 18 months (there hasn’t been a major one in 3 years). Nevertheless, investors must still remain cautious.

Crude has dropped 26% from 106.91 a barrel in June, and investors fear deflation.

“I don’t think we’ve necessarily seen the bottom yet. I want to see commodity prices rise, before I believe that the stock market rally is sustainable.” – Klientop

Another reason to shift stocks would be the major sell-off which has made them cheaper. The price-earnings ratio for S&P 500 companies has fallen to 14.7. This can be viewed as an opportunity in disguise, but investors shouldn’t rush into a market without reassurance. At the moment, purchasing stocks from large U.S. companies is the best strategy, says Koesterich. This is because the U.S. economy is slowly growing and it will expand.

” I wouldn’t be selling out stocks. You can trim a bit if you’re worried about volatility.” – Koesterich

Another lucrative strategy would be to simply wait for the slump to pass. Some investors are refusing to sell anything (example: Ron Wiener, CEO of RDM Financial Group).