Stock market moving too fast for your comfort? Investors should get used to it — more fast upward moves are likely this year, underpinned by a solid economic backdrop and healthy corporate profits.
Pronounced market volatility of late has resulted in some panicky trading. But rather than get alarmed by the frenzied activity, investors should learn to embrace the zigs and zags and make it work for them.
Although volatility could remain a staple of the markets in 2018, "There is no need to panic," said Joseph P. Quinlan, head of Market & Thematic Strategy at Bank of America Global Wealth & Management & US Trust. "Non-recessionary market pullbacks tend to be relatively short-lived," he said in a research note, "while major one-day market selloffs, historically, are typically followed by better than average returns."
Despite the recent market swings, the U.S. remains in good shape and the global economy "is firing on virtually all cylinders," Quinlan said. For now, he added, stronger economic growth, the tailwinds from tax reform and a currently weak dollar all point to higher corporate earnings.
He reiterated that investors need to diversify and rebalance portfolios where appropriate after last year's robust gains in equities. Quinlan also noted that market downdrafts are generally frequent, typically shallow in duration, and often result in higher returns down the road.
A lot of the recent market volatility stems from computerized trading systems and "some cockamamie algorithm–driven ETFs," noted market analyst Ed Yardeni, president of Yardeni Research, who says he remains bullish on stocks despite the wild market action.
"We remain focused on the outlook for earnings, which remains fundamentally sound for stocks," Yardeni said. With the benefit of hindsight, "We are thinking that perhaps the melt-up scenario in the S&P 500, which we had been anticipating since early 2013, might have ended at this year's January 26 record high, when the index was up 57.1 percent, measured from February 11, 2016 (that's year's low)," Yardeni said.
So what now that the market's melt-up/melt-down scenario may have already played out?
"We are lowering the odds of another melt-up in stocks, to 30 percent from the 70 percent melt-up odds we have since January 16 (when we we had raised the odds from 55 percent), Yardeni said. "And we are keeping the melt-down scenario at 25 percent.
"So the odds of a more leisurely-paced bull market are now the greatest of the three scenarios, at 45 percent," Yardeni said.