You are not the only one confused about where the economy is headed. Just look at the stock market, where perplexed investors have been sending stocks on a wild ride this month.
There could be plenty more where that came from. Two notoriously volatile months for stocks lie just ahead.
Stocks worldwide on Friday jumped to cap another tumultuous week. Investors have been frantically trying to rejigger their predictions about whether US President Donald Trump’s trade war with China and slowing economies around the world will drag the US into a recession.
In the US, the result was a week where the Dow Jones Industrial Average had four days where it rose or fell by more than 300 points — with an 800-point drop thrown into the mix.
Stocks, bonds and other investments heaved up and down throughout the week, with worries hitting a crescendo on Wednesday, when a fairly reliable warning signal of recession flipped on in the US Treasury market.
Friday marked the seventh time in the past 10 days of trading that the S&P 500 swung by at least 1 percent, something that has not happened since the end of last year, the last time investors were getting worried about a possible recession. At that time, they were concerned about rising interest rates, along with the trade war.
Do not expect the volatility to go away anytime soon, analysts have said.
No one knows when Trump’s trade war will find a resolution, nor whether all the uncertainty it has created will push enough businesses and shoppers to hold off on spending and cause a recession.
Some investors are digging in for trade tensions to last through next year’s US presidential election.
“We’re also heading into a tough season for the market,” John Hancock Investment Management cochief investment strategist Emily Roland said. “September and October tend to be the most volatile of the year for markets. We’ve been talking to investors for that reason to look for areas to prune risk within a portfolio.”
The S&P 500 has lost an average of 1.1 percent in September over the past 20 years, making it the worst-performing month of the year.
October’s track record is better, but it includes the worst monthly performance in that stretch, a nearly 17 percent drop in 2008.
However, Roland and other professional investors also cautioned that this kind of turmoil is actually normal for the market, when looking at it from a very long-term point of view.
The US stock market historically has had such bursts of tightly packed volatile days, interspersed between longer periods of calm. Since early 2009, whenever the S&P 500 has had a drop of 3 percent in a day, it either preceded or followed another such drop within a month 70 percent of the time.
“What’s been abnormal is the super-low volatility” that investors have been enjoying for much of this bull market, which began in 2009, said Brian Yacktman, portfolio manager of the YCG Enhanced fund.
The volatility is an opportunity to buy stocks at cheaper prices, he said, adding that he has been partial to bank stocks, which have been hammered on worries that lower interest rates will hurt their profits.
“When you have volatility like this, you’re actually buying the market on sale,” AIG Retirement Services CEO Rob Scheinerman said. “That’s a great thing.”
Technology companies and banks did the most to drive Friday’s broad rally, as investors regained some appetite for riskier holdings. Utilities, which have been one of the safer havens for investors this month, lagged the market.
The S&P 500 on Friday rose 41.08 points, or 1.4 percent, to 2,888.68, sliding 1 percent from a close of 2,918.65 on Aug. 9.
The Dow Jones Industrial Average, which had an 800-point drop earlier in the week, on Friday added 306.62 points, or 1.2 percent, to 25,886.01, a 1.5 percent drop from 26,287.44 a week earlier.
The NASDAQ on Friday climbed 129.38 points, or 1.7 percent, to 7,895.99, a decrease of 0.8 percent from a close of 7,959.14 on Aug. 9.
Investors on Friday favored smaller company stocks, pushing up the Russell 2000, which rose 31.99 points, or 2.2 percent, to 1,493.64, but dropped 1.3 percent from 1,513.04 a week earlier.
Even with the latest bout of turbulent trading, the S&P 500 is still having a good year. The broad market index is up 15.2 percent for this year.
Similarly, the NASDAQ is still up 19 percent for the year.
Additional reporting by staff writer
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