Surging volatility levels continue to grip the global financial markets, and this is why many investors currently feel powerless or unsure about which plan of action to pursue next.
Each of the major stock benchmarks are experiencing short-term price moves that rival the bearish trading sessions from some of history’s worst financial crisis periods. To make matters worse, the market’s declines remain persistent even after the Federal Reserve has taken action by cutting interest rates to zero.
As a result of each of these events, most of the latest evidence suggests that the Fed’s attempts to calm sentiment have been largely ineffective. For these reasons, elevated investor concerns shown in recent surveys are actually quite valid (and perfectly understandable), given the context of rising uncertainty that characterizes the market in its current form.
At the same time, we can never expect “panic reactions” to qualify as sufficiently thought-out financial planning strategies. Instead, a more proactive approach must always be viewed as an essential part of the investment process. Ultimately, this is why it makes much more sense for investors to assess the market’s long-term economic trends in order to glean important clues about where financial trends might actually be traveling over the next several months.
According to financial commentator John Authers, investors should ignore the “inner Buffett,” and simply do nothing. Rather than buying fervently based on the prospects of cheap market valuations, Authers argues that it may be wise at this stage to exercise patience and remain on the sidelines. In other words, investors should simply wait and watch to see how things play out.
However, making an eventual attempt at calling a market bottom also ignores the potential of certain investment opportunities that have been created over the last half-decade. According to Jake Clopton of Clopton Capital, “developing trends for economic growth in areas like manufacturing and commercial real estate have gone largely unnoticed by most of the financial news media and attractive investment opportunities still exist in many critical markets.”
Longer-term, the broader economic trends have managed to hold within favorable territory and this is another factor that should create some level of calm for strategic investors focusing on areas of the market that are fundamentally sound.
In the month of March, the Mortgage Bankers’ Association surveys have shown that U.S. mortgage applications rose by more than 55% (which is the biggest single-period gain in the history of the survey), and this performance follows a 15.1% gain that was reported during the prior period. In addition to this, refinancing applications rose by a massive 78.6% and this shows consumers are taking advantage of the Fed’s decision to cut interest rates down to historic lows.
For investors, it’s important to remember that market trends are never completely bullish or bearish and that the key to outperformance lies in the ability to select industry sectors that are most likely to outperform.
After unexpected stock market declines that are this substantial, it can be easy to make panic decisions that will only be regretted at a later date. But this is why it’s important for investors to watch for true changes in the economic landscape before committing to new positions, and to focus only on market sectors that have displayed long-term strength before selecting the next great value play in these increasingly pressured markets.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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