Stock market volatility has increased in recent weeks, but GuideStone Financial Resources analyst David S. Spika cautions retirement investors to focus on their long-term investment objectives and avoid impulsive decisions, even as the news of the day can appear alarming.
The recent sell-off in financial markets is a needed correction but does not signal the onset of a near-term economic recession, Spika, GuideStone’s chief strategic investment officer, noted.
“Economic growth is still too strong to indicate a recession is on the horizon,” Spika said. “As we’ve been saying for many months, the increased volatility we’re experiencing is warranted. What we’re seeing is to be expected at the tail end of the longest bull market in history, now more than a decade long.”
Even with the headlines and social media posts noting the markets’ moves every second, volatility as measured by the 30-day VIX volatility projection is at 22, well within the normal range, historically speaking.
As of the close of the markets Friday, Dec. 14, the S&P 500 Index was down 11 percent from its Sept. 21 close. Notably, if the S&P 500 ends 2018 with a negative total return, it would mark the first time since 2008 for such an occurrence.
The key factor influencing the market volatility at this time is concern about the impact of continued Federal Reserve rate hikes — a necessary process given the steps the Fed took following the recession of 2008 when it cut rates to a range between 0 and 0.25 percent and left them at that historically low level for several years. As a result, even the hint that the Fed may pause its rate hike cycle, which may come at the Dec. 18-19 meeting of its Federal Open Market Committee, could send stocks higher, Spika said.
“We have expected heightened volatility, relative to the last several years, in the markets,” he said, “but this is only a return to historic norms and not something investors should lose sleep over.”
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Source: Baptist Press