The equity market in 2014 appears to be moving to the beat of a different drummer than what we grew accustomed to last year.
With the Volatility Index, often described as the “fear index” rising nearly 80 percent during the first few weeks of the year, investors have grown slightly more nervous with the S&P 500 not marching higher each passing day.
Volatility is a normal piece of the market and is not something we should be fearful of but rather embrace -- and accept in reasonable doses. Looking at seasonality of the stock market, mid-term election years have historically brought a fair amount of market volatility, and this is something we must recognize as we monitor the risk being taken with our investments.
This massive amount of volatility can scare some people. It can make you over-think your process and question your investments. This isn’t a bad thing!
Sometimes it’s good to get a little shake to wake us up and re-examine what’s in our portfolio. The investment team at my firm is constantly evaluating the amount of risk taken in our client’s portfolios and making sure we are positioned appropriately.
What’s important is to remember that single day events and even multi-day events of market weakness and upticks in volatility in the market are normal, healthy, and should to some extent be expected. The street lights will still come on, the coffee will still be brewed in the morning, and the dry cleaning will still need to be picked up. My point here is that life goes on.
I’ve mentioned in previous articles that we must look at the bigger picture and its periods of trading, like in January, that make this point even more prevalent. We can all remember the waterfall-like action that took place in stocks during the financial crisis of 2008.