When volatility happens, I think\nit\u2019s almost always best to stay patient and let the volatility run its course.\nMy advice in 2020 will almost certainly be no different.<\/p>\n\n\n\n
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How to Prepare Your Investments for Volatility?<\/a><\/strong> If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! ______________________________________________________________________<\/p>\n\n\n\n Reason #1: We Can\u2019t Ignore History<\/strong><\/p>\n\n\n\n In a column late last year, I wrote\nthat we should expect volatility in 2020 because history tells us we should. If\nyou look at the S&P 500 over the last 38 years (1980-2018), 2<\/sup>\nyou\u2019ll find that not only are corrections frequent, they\u2019re the norm<\/em>.<\/p>\n\n\n\n The average intra-year correction\nfor the S&P 500 since 1980 is -13.9%<\/strong>. There are very few years in history where the S&P 500\ndidn\u2019t fall at least -5% within the twelve-month period. In the last 38 years,\nit\u2019s only happened twice: 1995 and 2017. In 2019, the biggest drawdown we saw\nwas -7%, making it a below-average year for equity market volatility.3<\/sup>\nIn 2020, I think we\u2019re due for a mean reversion, which might imply a correction\nmore in tune with longer-term historical averages (-10% or more).<\/p>\n\n\n\n Reason #2: Low Volatility Generally\nGives Way to High Volatility<\/strong><\/p>\n\n\n\n Since the middle of October 2019,\nthe S&P 500 Index has not moved 1% (or more) in either direction in a\nsingle day of trading. This low volatility streak is one of the longest the\nmarket has seen in 50 years, and it underscores the steady march higher that\nstocks have been on for months. History tells us that these extended periods of\nlow volatility tend to give way to periods of high volatility.<\/p>\n\n\n\n The last time the low volatility\nstreak happened for this long was just before January 2018 and October 2018,4\n<\/sup>which marked the beginning of sharp corrections:<\/p>\n\n\n\n S&P 500 from 2017 \u2013 Present<\/strong><\/p>\n\n\n\n Source: S&P Dow Jones Indices LLC<\/em>5<\/em><\/sup><\/p>\n\n\n\n Reason #3: Stock Buybacks are on the\nDecline<\/strong><\/p>\n\n\n\n The windfall many corporations\nearned in the aftermath of the 2018 tax cut essentially went to one of three\nplaces: new investments, stock buybacks, or cash on the balance sheet. Stock\nbuybacks are a corporation\u2019s main tool for reducing outstanding supply of\nshares, therefore boosting existing shareholder value. From a supply \u2013 demand\nstandpoint, lower supply means upward pressure on price, which is good for\nshareholders.<\/p>\n\n\n\n Since 2011 and particularly in 2018,\nthe demand generated by stock buybacks was higher than demand by institutions\nsuch as mutual funds. In short, buybacks have been important. But early\nestimates show that stock buybacks were down approximately 15% in 2019, with\nmore declines expected in the new year.6<\/sup> Another factor to consider:\nfewer buybacks could mean a tougher road for corporation\u2019s exceeding earnings\nper share targets, which could make investors jittery.<\/p>\n\n\n\n Reason #4: <\/strong> A Far from Straightforward Election Year<\/strong><\/p>\n\n\n\n Election years have historically\nbeen good for stocks, and I think 2020 will be too. But I also expect some\nbumpiness given all of the unknowns with this particular election. When I say \u2018unknowns,\u2019\nI\u2019m not necessarily referring to the political outcome. I\u2019m more concerned with\nforeign interference, contested results, civil unrest, and other extraneous\nfactors that might lead to a period of political instability. I ultimately\nbelieve the nation will accept the result and move on, but I expect some\nchoppiness in the build-up through November.<\/p>\n\n\n\n Bottom Line for Investors <\/strong><\/p>\n\n\n\n It is worth repeating that\nvolatility is a good thing <\/em>for equity markets, and experiencing it \u2013\nwhile often unsettling \u2013 is totally normal and expected. In my view, the\nS&P 500 is due for a correction this year on par with historical averages,\nin the \u201310% to \u201315% range. My hope is that long-term investors will keep the\npossibility of a market correction in mind this year, and remain calm and\npatient if (or when) volatility takes hold. <\/p>\n\n\n\n
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When preparing your investments for volatility, it is important to keep an eye on key economic indicators and base your next investment move on hard data. To help you do this, we are offering all readers a look into our just-released February 2020 Stock Market Outlook report.
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This report will provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n
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IT’S FREE. Download the Just-Released February 2020 Stock Market Outlook<\/a>1<\/a><\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/MOTM_Volatility_Chart-1024x395.png\")
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