Low Volatility Stocks and the Market Situation Stocks with low volatility are one of the most sought after stocks, but what does the current market situation bode for them?
TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
Selecting the kind of stocks to invest in, according to your investment goals is an important aspect of trading success. With direct market access trading offered by successful broker dealers online, it is easy to get started. Low volatility stocks are chosen by traders in the interest of safety. Low Volatility Stocks Experiencing Rising Valuations Investors get uneasy when valuations soar for stocks that have a history of low volatility. As a group, these stocks have forward P/E ratio at a record 45% greater than those of high volatility equities according to UBS Group’s Keith Parker, as reported by Investopedia’s Mark Kolakowski. He also believes that at this point in the economic cycle it’s too early for paying such a high premium for stocks that appear to be safer. Outperforming the S&P 500 Kolakowski presents data from Yahoo Finance, comparing the performance of three ETFs known for their low volatility - with that of the market, based on adjusted closing prices taken during the period from the 2nd of October, 2018 to the 17th of January, 2019. While the S&P 500 Index (SPX) slipped 9.8% during the period, the Invesco S&P 500 Low Volatility ETF ($SPLV) was only down 2.5% while the iShares Edge MSCI Min Vol USA ETF ($USMV) was down 5.1%, more than the Invesco ETF but significantly lesser than the S&P 500. This data shows the trend of low volatility stocks beating the market since the start of the S&P 500 selloff in October 2018. But, as per a report by Barron’s, the bottoming out of the correction in February 2018 did cause the aforementioned ETFs to post losses in the region of 9%, which isn’t significantly better than the 10% decline of the S&P 500. The situation now is different though. February 2018 Not a Great Time for Low Volatility Stocks Barron’s refers to the situation in February 2018 being unfavorable for stocks with low volatility, because of factors such as rising interest rates and an economy that was building up pressure. Now though, there are indications that the economic growth is decelerating and the pressures of inflation have reduced. The situation now is such that the soaring market raises the risk of a recession, according to Morgan Stanley.
www.tradezero.co
+1.954.944.3885
Growth Sectors the Preferred Option UBS’s Keith Parker is of the impression that the present economic expansion could extend into 2020. He also observes that it takes 26 months for the ISM Manufacturing Index to bottom out following a peak. But its recent highest point was just 5 months back. So Parker believes investors should stay put in healthcare, technology and other such growth sectors and not move over to utilities, consumer staples or any such defensive stocks. Parker believes this strategy is “relatively cheap� and still manages to account for the major risks thanks to its relation to factors such as decelerating growth, tariffs, profit margin sustainability and rising wages. The S&P 500 forecast has been slashed in 2019 to a 2,950 year-end value from 3,200. That makes for a 7.8% cut. Parker also suggests focusing on companies with the ability to raise dividends faster than the market, and other such high quality companies. With online stock brokers offering you all the assistance you need to trade smoothly, you can get started easily. But always make sure you study the market in-depth.
www.tradezero.co
+1.954.944.3885