Investment Managers Weigh in on Volatility

Terry Flanagan

Market volatility is often portrayed by the mainstream press as scary and undesirable.

But markets rise and fall by nature, and the reality is that placidly benign markets — as has been the norm for much of the past several years — are unhealthy in their own way, not to mention unsustainable.

To that end, investment managers are weighing in about the spike in volatility over the past two weeks, and the message is largely constructive.

Columbia Threadneedle Investments, which manages about $360 billion, noted a litany of market swoons over the past few decades, each one followed by an eventual recovery, often a quick recovery

“In today’s financial market fear is running high. Yet, the stock market and economic experiences over the past decades were at times quite frightening too,” Columbia Threadneedle wrote in a blog post. “The U.S. stock market has been remarkably resilient; it has routinely recovered from short-term crisis events to move higher over long-term periods.”

“While the Dow Jones Industrial Average, on average, declined during periods of crisis, the ensuing 12 months typically produced double-digit returns,” the asset manager wrote.

The recent volatility has been driven by a slowdown in China, sinking oil prices, and expectations that the U.S. Federal Reserve will soon begin raising interest rates. Each factor carries its own bearish implications, but some managers note that the global economic backdrop — and by extension the outlook for corporate earnings — remain reasonably strong.

Michael O’Brien, Eaton Vance

Michael O’Brien, Eaton Vance

When market media focuses on macro events, such as geopolitical risks or growth scares, rather than underlying company fundamentals, volatility is usually the price paid by investors,” Jeff Mortimer, director of investment strategy at BNY Mellon, wrote in a recent blog post. “It is critical to be able to identify whether a market retrenchment is a product of growth fears alone or if it is the beginning of an actual recession.”

“While pullbacks are always scary, we must learn to keep them in context,” Mortimer continued. “We are not frightened by the current market conditions and see no cause for alarm as we believe the global economy remains in a slow and steady recovery.”

In fixed income markets — which have attained some notoriety over the past few years for their perceived illiquidity — rapid price moves, and the attendant coming of going of buyers and sellers, aren’t necessarily phenomena to be feared.   

“Fluctuating liquidity costs and bond prices are part of normally functioning markets,” Eaton Vance Director of Global Trading Michael O’Brien wrote in a blog post. “Investors who understand these dynamics may be well-positioned to benefit over the medium-to-longer term.”

Feature image by Bradcalkins/Dollar Photo Club

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