Whatever doesn’t kill this bull market may only make it stronger.
That’s the view of Charles Schwab analysts, who argued that investors should be welcoming the volatility that’s made a dramatic reappearance in the U.S. stock market over the past two months.
Recent turbulence gave major indexes their first correction in about two years — the Dow Jones Industrial Average DJIA, -1.59% and the S&P 500 SPX, -1.11% in February, the Nasdaq Composite Index COMP, -1.21% poised to on Wednesday — as well as contributing to some of the biggest one-day swings in both directions in years. However, rather than such gyrations signalling the end of the multiyear bull market, this could actually be putting equities on a stronger footing.
While the current environment is much scarier than 2017 — an atypically quiet year, where Wall Street rose with basically no pullbacks and record-low volatility — “ironically, this is probably a healthier investing environment which could help keep the bull market alive,” wrote the team of analysts, including Liz Ann Sonders, Schwab’s chief investment strategist.
“Valuations, which were quite extended as we entered 2018 have had the chance to retreat somewhat — courtesy of both the correction in prices, but also the strength in earnings. Additionally, sentiment conditions… had gotten to record optimistic levels, but have now corrected back to the neutral level.”
Volatility returned to markets so swiftly this year that it was “like flipping a switch,” Schwab wrote.