Halloween scares the market | The investor benefit

By John Stewart, Chief Investment Officer at Farmers Trust Co.

The stock market got a spooky surprise on Halloween as investors feared risks. The previously high-flying technology sector bore the brunt of the damage, but sales were relatively broad-based.

Typical safe havens such as utilities and consumer staples performed better as investors looked for places to hide.

Presumably the catalyst for the sell-off was a cautious outlook from some of the biggest and most important technology players – most notably Microsoft and Meta Platforms, formerly known as Facebook.

Although these companies and most others beat earnings estimates for the past quarter. they leave investors a bit spooked about what’s to come in the coming quarters.

Election jitters may be another cause of last week’s selling pressure, and I’ll have more on that soon.

It’s fun to talk about the short term, but what really matters is whether or not future earnings expectations will continue to decline, as has been the case in recent weeks, or whether they will surprise on the upside as interest rates rise. have fallen in recent weeks. The Fed is starting to take action. Some caution is probably warranted at this point.

Speaking of scared investors – there is actually a metric to measure how scared investors are – it’s called the volatility index or VIX.

When investors worry about a market downturn, they buy insurance in the form of put options, which drives up the price of insurance as measured by the volatility index.

Normally, a VIX value above 20 is considered elevated, a value above 30 is considered very high, and a value around 50 is outright panic. Below 15 would be considered relative calm.

Right now the volatility index is around 22 or 23, which is somewhat high, but certainly not extreme.

While it may seem counterintuitive, the more fearful investors are, the more opportunity there is in the markets. Warren Buffett famously said: be fearful when others are greedy and be greedy when others are fearful – the VIX gives you a gauge to measure how greedy or fearful investors are.

There are elections next week, did you know that?

It seems like every election is heralded as the most important election of our lifetime, and given the heated rhetoric of this election, that is once again the media’s claim about the seriousness of this election.

As I just mentioned, the volatility index has been elevated as investors try to hedge potential election-related volatility, and perhaps there will be some volatility around the election, but for longer-term investors it makes sense to stick to a disciplined strategy rather than trying to predict short-term market movements.

If heightened fear causes stocks to sell off, this could be an opportunity to put some of the money to work on the sidelines. Just make sure it competes with rising earnings expectations. These estimates will tell the story of the impact of government policies on stocks, sectors and the market in general.