How to Ride the Roller Coaster of Current Market Volatility
While many of us ramp up our outdoor activities in June, the stock market has metaphorically lounged under a shade tree. June market performance usually is lackluster at best. In fact, since 1945, the S&P 500 has averaged a .02 percent gain during the month. But, this year, June stocks have taken a roller coaster ride, propelling many to ask what’s behind the current market volatility.
In just three consecutive days during the month, the Dow Jones volleyed up and down by more than 1 percent. It dropped 400 points in one day, only to rebound 300 points the next. It then slipped the third day by 252 points. Also during June, the CBOE Volatility Index, which measures investor fear, jettisoned to 18.78 from a May 25 low of 12.29.
What is causing current stock market volatility?
Financial experts agree that a number of political and economic forces, both here and abroad, are causing a wild ride for stock price volatility:
- Markets reacted negatively to tariffs placed on steel and aluminum coming from Europe, Canada and Mexico, as well disagreements between President Trump and U.S. trading partners.
- Italy is in turmoil, which could lead to the country leaving the European Union as well as the euro. The possibility of another EU exit causes uncertainty because nobody really knows what the future affect will be. That led stocks around the world to plummet.
- In the meantime, the United States received welcome news that unemployment is at an 18-year low, coming in at 3.8 percent. While that is good news to many, the markets historically fall during times of low unemployment because they are coupled with higher inflation and interest rates. While that’s not the case today, low rates still cause concern for investors.
June 12 may be a pivotal day for current market volatility
Many will be watching the markets Tuesday, June 12, for two reasons: President Trump is scheduled to meet with North Korean leader Kim Jong Un, and Federal Reserve begins its regularly scheduled June meeting, when it’s expected to increase interest rates.
No matter the result of President Trump’s meeting in North Korea, markets are likely to react—positively if the meeting reportedly goes well or negatively if the meeting doesn’t reach an amicable conclusion. At the same time, if the Fed hikes interest rates, investors worry that higher inflation will follow.
In short, investors can likely expect markets to volley up and down the rest of the month. Some financial experts see this as a new norm thanks to a booming economy paired with tax reductions, deregulation and uncertainties of President Trump’s next moves.
What to do during stock price volatility
Whether you watch current stock market volatility closely or just scan the headlines, we have a few tips to get you through June and any future extreme market fluctuations:
- Remember that the current stock market volatility is a normal part of market history. For example, the S&P 500 goes through a correction every two years. Our best piece of advice: Don’t panic and don’t try to predict the market. None of us know when these fluctuations will occur and how long they will last. Making changes to your stock portfolio based on predictions can lead to negative financial consequences.
- Think long-term. More often than not, volatility has little effect on a strategic, long-term financial plan. Plus, downturns tend not to last long, relatively speaking. And, they are often followed by longer-lasting bull markets.
- If you’ve purchased individual stocks, this may be a good time to reassess your original strategy for buying them. If you’d use the same strategy today, it’s wise to hold on to them.
- A down market is a good time to buy, as long as you do it strategically. One investor likens market volatility to standing in traffic—you can’t do anything about the situation, so plan for it and seize opportunities.
Contact us for help
If you are concerned about current market volatility and how it may affect your portfolio, contact us or call (920) 230-2215. We’ll talk through your financial goals and help you determine the best course to get you where you want to go.