Market Volatility

Think of market volatility as bipolar person, they have manic swings in their mood. They can go from being happy to being upset and back again in a matter of seconds. Apply this concept to a certain degree to the stock market. One day the S&P 500 can be up 500 points, the next day the S&P 500 can be down 500 points.

A volatile market is typically associated with manic swings to the downside. Though volatility can be both manic swings up and down, it is typically associated with a sharp down market. The market has a fear gauge known as the VIX, which is the volatility index.

When investors are nervous they tend to sell first then ask questions. This for the most part is what leads to manic selloffs in the market, and then in a slight bit of good news market start to rally. Remember spring of 2018 when Trump announced tariffs, and markets in a blink of an eye were down, and one day an announcement came that Mexico and Canada can be spared from tariffs, and the market went from being down 1,000 points to being up nearly 700 points. That would be one of the best examples of volatility.

Where to invest in volatile times

Though market volatility affects every sector, defensive sectors can be seen as a bit more stable. That would be the consumer staples and utilities sector. These areas hold up well during higher volatile times.

High dividend paying stocks that have stable earnings can be another way to weather the storm. The dividends can be a steady stream of income for a stable portfolio. Bonds are another way to hide out during volatility.