Prudent Portfolio: Market Volatility is Here but There Are Good Investment Opportunities
By Kevin Peters
Despite continued job growth, low unemployment and wage growth, uncertainty concerning overseas markets, oil prices and possibly slower growth buffeted the markets in December with the market indices plummeting.
Volatility continued in January as the Dow Jones Industrial Average opened the year at 23,433, then slid by about 400 points, then gyrated up and down through the middle of the month.
Depending on the day, and often the time of day, the uncertainty affected financials and industrials, all of which had down days. Causes ranged from rumors of changes in overseas oil production levels to questions about interest rates or interpretations of global finances that some say are forecasting a new recession.
Despite the challenges, I believe that 2019 opens interesting opportunities for investors to make sound long-term purchases, using market fluctuations to good advantage by practitioners of modern wealth management. With swings in the market, there will be good times to buy and opportunities to sell, although investors should stay aware of the overall state of the market.
One of the most oft-mentioned causes of market uncertainty relates to interest rates. In mid-December the Federal Reserve announced it would raise interest rates by .25 percent to a range of 2.25 percent to 2.5 percent. It was the ninth increase of the benchmark interest rate since 2015. That announcement was accompanied by a statement from Federal Reserve Chairman Jerome Powell that due to lower than expected inflation, the Fed would be loath to continue raising rates at the pace initially considered in 2019, now projecting two increases this year.
Immediately thereafter, markets shot up, and like absent-minded shoppers who remember that on the way home they have forgotten something important, the markets turned drastically and tanked, dropping sharply while Powell was still holding a news conference. Before the day was done, market indices recovered some of the losses, then spent the rest of the session vacillating, ending significantly lower.
It is obvious that volatility has returned, even though the Fed has backed off its hard stance of steady interest rates next year. Stocks may rebound on even a sliver of good news but drop again like a rock if there is a whisper of anything that can even remotely be construed as bad news.
This is an essential time for investors and their advisers to stay in close communication, keeping an eye on daily fluctuations and staying aware of potential opportunities or adjustments to their overall portfolios. Investors may see myriad opportunities to further bolster their holdings.
Oddly enough, while many analysts blamed fluctuating oil prices, studies of the correlation between oil and market prices do not show a direct line. Over time, oil prices are determined by the supply and demand for petroleum-based products. During an economic expansion prices might rise as a result of increased consumption or fall because of increased production. Meanwhile, other analysts suggest that the overall stock market may increase by about 10 percent or so in 2019.
Overall, I believe there are many signs that the economy will continue to trend positively, and eventually, that can be good for the markets as well.
Of course, caution remains the watchword for investors. Re-evaluate your risk tolerance. Check on the profitability of the companies represented in your portfolio. Make sure you still have the right mix and remain on target to meet your goals.
Kevin Peters is a financial adviser with the Wealth Management Division of Morgan Stanley in Purchase. He can be reached at 914-225-6680.
The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.
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