Market Volatility Forecast
DON GONYEA, HOST:
The markets have been on a rollercoaster ride this last week. We had one of the largest gains of the year only to have it drop again. This whiplash is leading to a lot of uncertainty. Here today to help us make sense of it all is Financial Times columnist Rana Foroohar.
Welcome. Thanks for joining us.
RANA FOROOHAR: Thanks for having me.
GONYEA: So why are we seeing this volatility right now?
FOROOHAR: Well, there's a few reasons, and some of them are long-term reasons that we knew were already in the mix. And that's the fact that, look - it's been 10 years of a recovery cycle. It may not feel like that to some people, but we've actually been in an economic recovery for a long time now. So we were due for a bout of volatility and possibly even a market correction. So that's one of the factors that are in the mix right now.
There are other things that are more specific to this administration and the politics of the moment. President Trump's trade war with China over the last few months has created some market jitters. And, in recent days, his questioning of Jerome Powell's authority at the Fed, and also treasury secretary Steve Mnuchin coming out and saying, well, the banks have enough money if there's a downturn - well, it makes people wonder, are we going to have a downturn? That increases jitters as well.
There's also a certain amount of volatility that's natural during a holiday period when a lot of people are not trading. There's money on the sidelines. That increases volatility as well.
GONYEA: Well, you mentioned the White House and some of the signals coming out of there. How much impact is this president having on the markets with his tweets?
FOROOHAR: Well, quite a bit, unfortunately. As I say, we're already at a point where we were probably due for some troubles anyway. China's slowing. Europe is looking to be more volatile. So there were already trouble. But he is pouring kerosene on that fire with his tweets. This is a time when we are probably going to be slowing down economically, possibly having market volatility, possibly having a correction. What we need is a president that is reassuring, making stable policy decisions and supporting the market and supporting the people that are in charge of the market, like the Fed. And that's not happening.
GONYEA: You mentioned that we're in a transition and that the financial narrative is changing. What is it...
GONYEA: ...Changing to?
FOROOHAR: Well, the last 10 years, even though we've been recovering from the financial crisis of 2008, there's been a single narrative. And that has been that interest rates are low. Money is pretty easy. The Fed is bolstering the markets. Well, recent data - low unemployment rates, pretty good growth over the last few quarters - has forced the Fed into a different position. There's been a rate hike. There may or may not be more rate hikes in the future, but it's clear that we're moving out of this decade of easy money, and we are moving into a period that, frankly, is more like a historic normal where you are going to have ups and downs.
You are going to have turmoil in the markets. There are also industry-specific issues like the FAANGs - Facebook, Apple, Amazon, Netflix, Google. All the tech stocks are under threat from regulation. And those are the stocks that have lifted the markets in recent years, and they're now leading the downturn.
GONYEA: And this volatility, this changing narrative - what does that mean for the average investor?
FOROOHAR: Well, it depends on what your horizon is in terms of your money. If you're saving for your retirement, and you're not going to need that money for a number of years, the key really is to sit tight. You do not want to sell or make any sudden portfolio moves in a period of volatility. Now, if you need your money, if you need cash in the short-term future in the next month and maybe the next year, then it's possible that you do want to wait for one of the up cycles, which is bound to come. We're going to see lots of ups and downs in the next few months, so you might want to move your investments into more conservative places or even to cash.
GONYEA: What advice do you give people who are thinking of investing or who are just worried about their 401(k)?
FOROOHAR: Well, again, I would say that if you have a medium- to long-term horizon, don't make any sudden move. U.S. stocks are still a pretty good place to be. Oftentimes, when there's a global slowdown, you start to see a lot of people going into U.S. assets because they're considered a safe haven. Now, this administration and the politics of the moment has definitely created some jitters. But the time to sell, the time to shift your retirement assets, is not in the middle of a change cycle economically like we're going through. Sit tight, don't make any sudden moves and be prepared to strap in for some more volatility.
GONYEA: Rana Foroohar is with the Financial Times.
FOROOHAR: Thank you.
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