September 19, 2024
Should Investors Brace for More Volatility? Here’s Where the Stock Market Could Be Headed #NewsUnitedStates

Should Investors Brace for More Volatility? Here’s Where the Stock Market Could Be Headed #NewsUnitedStates

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Stocks are on their way to close out a strong week, erasing investors’ losses from the recent sell-off.

The S&P 500 and Nasdaq surged for six winning days in a row as of Thursday’s close. The recovery comes amid stronger-than-expected retail sales data, a decline in weekly jobless claims and inflation falling to below 3% for the first time since 2021.

So was the volatility earlier this month — when the market fell to levels not seen in nearly two years — a blip? Or was it a sign of what’s to come?

Experts say that while stocks likely still have room to run, we can also expect more ups and downs as we close out summer and head into the final months of the year.

What experts say is next for the stock market

While the market’s recent recovery has shown that we’re probably not yet at the end of the current bull market, investors should brace for more volatility.

The recent market turbulence was “a subtle reminder to investors that market pullbacks are not uncommon, and investors should be prepared for future unforeseen periods of volatility,” says Craig Robson, founding principal and managing director at Regent Peak Wealth Advisors. “Prior to mid-July there hasn’t been much downside volatility in 2024, and the capital markets appear ready to sell off on any negative news associated with the economy.”

The news — and data — investors are focusing on appears to be shifting.

Prior to August, the market was afraid of inflation, says Rick Wedell, chief investment officer at RFG Advisory. But the recent economic data flipped the market fear from whether inflation is under control and the Fed needs to do more, to whether the Fed has done too much and is now behind the curve in changing tactics to avoid a recession.

“The selloff itself was probably overdone, but the flip in the fear factor should be noted,” Wedell says, adding that it seems likely this isn’t our last recession fear spell.

Despite the recent market pullback and fears that it may be the beginning of a deeper decline, Fidelity Investments’ director of quality market strategy Denise Chisholm says she expects the opposite. She recently compared stock market returns with what’s called the U.S. Composite leading indicator index (CLI), an index that measures a basket of leading indicators in an attempt to provide early signals of turning points in the business cycle.

Chisholm found that the CLI accelerated at a similar pace as the stock market returns, which is what you’d expect to see at this cycle of a bull market. But the CLI’s rise has been “relatively modest,” which means there could be room for the market to price in more good news.

Stocks have historically returned 13% over the following 12 months on average after similar readings of the CLI and stock market return, Chisholm wrote in a recent market outlook.

What investors should do

While it may be tempting to adjust your portfolio after reading headlines about positive or negative economic data and predictions about a recession (or lack thereof), it’s not advisable. Financial advisors tend to recommend putting together a well-diversified portfolio that aligns with your goals and sticking to it — even through rollercoaster-like market moves.

But in order to mitigate volatility, investors should reassess the amount of risk they’re taking on, liquidity needs (like whether you have as much easily-accessible money as you need), time horizons and portfolio allocations, Robson says. Doing so might illuminate gaps in your current plan that you should address, such as shifting some of your portfolio from stocks to bonds before future market dips if you’re nearing retirement.

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