The Stock Market may remain volatile for the near future. That’s according to Dr. Benjamin Jansen, the Associate Professor for Finance at Middle Tennessee State University.
Jansen said the market is very difficult to predict.
“If we look at the volatility index, it spiked big time in mid-March I believe,” Jansen said. “It’s gotten lower from the peak volatility, but it’s still much higher than it’s been over the last few years. So, I wouldn’t be surprised to see this volatility.”
While the overall economy has remained sluggish since the COVID pandemic began, the stock market has fared better. The Dow Jones Industrial Average rose over 4,000 points from March to May this year. Jansen, however, said the numbers can be misleading.
“First and foremost, is usually concurrent and backward looking,” Jansen said. “It takes a little time for economic data to come out. On the other hand, financial markets, particularly the stock markets, are usually very forward looking. Usually when you’re looking at what’s going on in the stock market, it’s more of a reflection of what people expect to be going on in the future and any long term changes of valuation over that time.”
Jansen said to get a better gauge of how markets are performing, it helps to look at different industries instead of the market as a whole.
“We see that there are some industries that, looking forward, are likely going to be having a very difficult time,” Jansen said. “So while the broad stock market might be up, specific industries such as restaurants and airlines are actually down quite a bit. The airline industry, for example, is down, I think, by 45 percent over the last year or so. So, that’s been hit tremendously, whereas we have other such as discretionary consumer, tech companies, and stuff like that where the virus might be affecting operations, but they may not be affecting the long-term viability of that industry.”
Despite the volatility in the marketplace, Jansen said it is always important for the average investor to not overreact. He said, over the long run, stocks typically grown over time.
“The really important thing for people to keep in mind is to keep a level head about your investments,” Jansen said. “It’s generally a good idea to never overreact to things going on. If you have any financial needs, try to make sure you take care of them. But if you are able to maintain a level head, then keep moving forward with you long-term investment plan.”