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Market Commentary

July 1, 2015

Scott L. Wren, Senior Global Equity Strategist

Weekly update on current stock market action

  • Uncertainties surrounding Greece in the nearer term should keep volatility high but the Federal Reserve (Fed) is also on investor’s minds.

What it may mean for investors

  • Volatility often creates opportunity. For those with sidelined cash, have a plan and be ready to step in and gradually execute that plan on down days and weeks in the market. We expect to see more record highs over the balance of the year.

Volatility Can Still be Your Friend

After Monday’s steep selloff, this strategist broke out his calculator and quickly determined that the S&P 500 ended the day only 3.4 percent lower than its all-time record closing high. But boy, it sure doesn’t feel that way. Even the so-called professionals in this market are reacting as though stocks have traded meaningfully lower than what has actually occurred. And as far as regular investors are concerned? Let’s just say the uncertainty over Greece and when the Fed will start to move on interest rates have pretty much worn out most of the enthusiasm over the record-setting run in the equity markets. Constantly being on edge gets old after a while.

As regular readers of this piece know, we have been waiting, anticipating and yearning (yes, yearning) for increased volatility in the market for some time but stocks have not cooperated. Equities have pretty much made a determined, gradual march higher over the last three years with hardly a stumble along the way. In fact, if my grey matter serves me right, the last time the S&P 500 had an actual ten percent pullback was way back in October of 2011. Historically, that is a long time between decent corrections. One thing is for sure, good old dollar cost averaging has worked like a charm over the last several years.

But the time seems right for a more volatile period in the markets. Confusion reigns supreme over whether or not the Eurozone will get its act together and be able to cushion the blow to global financial markets and the regional economy should Greece be forced out of the currency union. Personally, this strategist would not want to bet against the Bundesbank (Germany’s central bank and basically the holder of the keys to European monetary policy) to have drawn up an elaborate and ultimately effective plan to avoid a Euro-disaster, should the worst-case scenario unfold. But in the meantime, investors are naturally running for cover in the global financial markets largely through the purchase of U.S. dollars, U.S. Treasury bonds and German Bunds (government bonds).

Our best guess, based on a large amount of fundamental analysis, tells us we will likely see a few good buying opportunities in the equity markets in coming weeks and months. But trying to pick the bottom in any pullback, as always, is not going to be easy. We expect a month or two of heightened volatility based solely on the Greece situation in the nearer term. While that might not exactly be a novel or bold prediction, we feel the need to point out the importance of having a plan to invest sidelined cash in the market on the way down, once again, not trying to pick the bottom. Then you need to step in and gradually execute that plan as the opportunities arise. I can tell you right now this strategist will not be able to tell you when to jump in at just the optimal time.

Take advantage of what the market is potentially going to give you. We have said it before but volatility can still be your friend, don’t treat it like your enemy. Use it to your advantage.

Scott WrenAbout Scott Wren

Scott Wren is a senior global equity strategist for Wells Fargo Investment Institute (WFII), an organization that provides global manager research and investment strategy advice to Wells Fargo’s Wealth, Brokerage, and Retirement (WBR) division. WBR is comprised of Wells Fargo Private Bank, Wells Fargo Advisors, Wells Fargo Institutional Retirement, and Abbot Downing businesses, accounting for more than $1.6 trillion* in assets under administration.

Mr. Wren produces strategy and guidance recommendations for global equities. With his knowledge of the financial markets, he is often quoted in national media outlets including Reuters, The Chicago Tribune, The Los Angeles Times, The Washington Post, The Associated Press, and The Wall Street Journal. He has appeared in interviews on CNBC, Bloomberg TV, Fox Business News, and Nightly Business Report. Prior to joining Wells Fargo Advisors predecessor A.G. Edwards in 1998, Mr. Wren worked as a senior foreign exchange dealer for The Boatmen’s National Bank of St. Louis. He began his career on the trading floor of the Chicago Mercantile Exchange and has more than 25 years of experience in financial services.

He received a Bachelor of Science in Business Administration from the University of Kansas and a Master of Finance from Saint Louis University. He is located in St. Louis, Missouri.

*As of Sept. 30, 2014

Risk Factors

Any investment in the stock market should be made with an understanding of the risks associated with investments, including market fluctuations.

A periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets. Since such a strategy involves continuous investment, the investor should consider his or her ability to continue purchases through periods of low price levels.

Disclaimers

Global Investment Strategy (“GIS”) is a division of Wells Fargo Investment Institute, Inc. (“WFII”). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by the GIS division of WFII. Opinions represent GIS’ opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

Additional information available upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice.

Brokerage products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company.

 
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