Market Volatility: What You Need to Know

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In an ongoing commitment to keep you abreast on a range of issues that might affect your business, AAFCPAs is pleased to share insights published by AAF Wealth Management, a wholly owned subsidiary of AAFCPAs. 

The stock market has experienced significant volatility in recent weeks. After reaching a high in mid-July, the S&P 500 has fallen back. Despite this, the market is still up on the year, but the volatility may be concerning for some investors.

This volatility is not unexpected. Since last October, the S&P 500 has risen by about approximately 25 percent, an outstanding move that was bound to catch up with us at some point. Volatility is a natural part of the market, and it is not unusual to see it after a prolonged period of growth.

Several factors have contributed to the recent market volatility. Poor jobs numbers and low Institute for Supply Management index (ISM) numbers indicating soft manufacturing have all played a role. These events have led to renewed concerns about a potential recession, and you may see headlines attesting to this in the coming days and weeks.

It is important to remember that recessions are a natural part of the economic cycle. If one does occur, we will go through it and come out the other side, with growth beginning anew and markets responding accordingly. In the short run, things may get scary, but it is important to focus on the long term.

The Federal Reserve is closely monitoring the situation, and there is a high likelihood of a rate cut in September. In fact, six rate cuts are back on the table between now and the end of the year. This could help to stabilize the market and support growth.

In the coming days, it is possible that we may see circuit breakers triggered if extreme volatility continues. These are measures put in place to halt trading temporarily during a severe market decline to prevent a complete market collapse. Circuit breakers are triggered at three levels, depending on the severity of the decline, and can halt trading for 15 minutes or, in extreme cases, for the remainder of the trading day.

Market volatility can be concerning, but it is important to remember that it is a natural part of the market cycle. Historically, markets have always calmed down and righted themselves over time. The key is to focus on the long term and remember the importance of time in the market rather than trying to time the market.

If you have questions, please contact Kevin P. Hodson, CMT, CAIA, AIF® at khodson@nullaafwealth.com or 774.512.4173—or your AAFCPAs Partner.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.