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Volatility Tests Your Mettle

Matthew Boudreaux

Matthew Boudreaux


Most people understand that stock prices don't go straight up. But when market volatility increases, the price action can test the mettle of even the most seasoned investor.

In recent weeks, stock prices have trended lower with a few eye-popping, one-day rallies as the financial markets appear to adjust to higher interest rates on long-term Treasuries. Since the beginning of the year, we've seen a jump in the yield of the 10-year treasury.1

While investors recognize that economic strength may lead to higher bond yields, it's the speed at which bond yields increased that proven unsetting. Generally speaking, when yields rise, bond prices tend to fall.

It's uncertain what's next for stock prices, but it's possible the current downtrend could take certain market indexes into a correction, meaning a decline of 10% or greater from a recent high. The Nasdaq market has flirted with correction territory as the rising bond yields have upended some high valuation growth stocks.2

But by comparison, the Standard & Poor's 500 index has seen a modest pullback from its closing high set on February 11, 2021. The Dow Jones Industrial Average set an intraday record high in recent trading.2

What matters is what you do next. Right now, it may be best to ignore some of the short-term price swings. Remember, you craft your investment strategy to help pursue your long-term goals, regardless of what the markets do from day-to-day.

You're always welcome to give us a call with your questions. Rest assured, we're keeping a close eye on the financial markets, and most importantly, watching for any new long-term trends that may emerge on your behalf.

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Citations:
1. CNBC.com, March 8, 2021
2. CNBC.com, March 5, 2021