discuss the current volatility in the u.s. stock market. why? course hero

What's behind the current volatility in the stock market?

What’s behind the current stock market volatility? At one point Monday, the Dow Jones was down more than a thousand points and the S&P 500, which is a wider gauge of the stock market, fell into correction territory — a drop of 10 percent from its previous high.

Should you buy stocks with high volatility?

When volatility is high, both in terms of the broad market and in relative terms for a specific stock, traders who are bearish on the stock may buy puts on it based on the twin premises of “buy high, sell higher” and “the trend is your friend.”

Why is volatility important for investors?

Why Volatility Is Important for Investors. The stock market can be a highly volatile place, with wide-ranging annual, quarterly, even daily swings of the Dow Jones Industrial Average. Although this volatility can present significant investment risk, when correctly harnessed, it can also generate solid returns for shrewd investors.

What is the relationship between market volatility and expected returns?

Their research found that higher volatility corresponds to a higher probability of a declining market, while lower volatility corresponds to a higher probability of a rising market. Investors can use this data on long term stock market volatility to align their portfolios with the associated expected returns.

What is volatility in stock market?

Stock market volatility is generally associated with investment risk; however, it may also be used to lock in superior returns. Volatility is most traditionally measured using the standard deviation, which indicates how tightly the price of a stock is clustered around the mean or moving average.

What are some examples of economic factors that can affect volatility?

Regional and national economic factors, such as tax and interest rate policies, can significantly contribute to the directional change of the market and greatly influence volatility. For example, in many countries, when a central bank sets the short-term interest rates for overnight borrowing by banks, their stock markets react violently.

How does bear market affect portfolios?

The higher level of volatility that comes with bear markets can directly impact portfolios while adding stress to investors, as they watch the value of their portfolios plummet. This often spurs investors to rebalance their portfolio weighting between stocks and bonds, by buying more stocks, as prices fall. In this way, market volatility offers a silver lining to investors, who capitalize on the situation.

How to measure volatility?

Volatility can be measured using the standard deviation, which signals how tightly the price of a stock is grouped around the mean or moving average (MA). When prices are tightly bunched together, the standard deviation is small. When prices are widely spread apart, the standard deviation is large.

When do you use options?

When volatility increases and markets panic, you can use options to take advantage of these extreme moves or to hedge your existing positions against severe losses. When volatility is high, both in terms of the broad market and in relative terms for a specific stock, traders who are bearish on the stock may buy puts on it based on the twin premises of “buy high, sell higher” and “the trend is your friend.”

Is the stock market volatile?

The stock market can be highly volatile, with wide-ranging annual, quarterly, even daily swings of the Dow Jones Industrial Average. Although this volatility can present significant investment risk, when correctly harnessed, it can also generate solid returns for shrewd investors.

Why are my clients afraid of volatility?

Sometimes providing advice is as much about managing client behavior as it is about asset allocation and retirement projections. If your clients are fearful, it's because you haven't communicated with them enough, and you haven't done your job ...

Can clients control the market?

Clients should know that while they can't control the markets, they can control their financial plan, and a strong plan can withstand volatility. Your review should focus on how their portfolios are positioned and reassure them that their allocation is still appropriate.