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 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
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