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What to Make of the Latest Stock Market Volatility

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Investment experts on stock market volatility

According to Financial Review, conventional investors believe that a trade war with China (FXI) poses the biggest threat to the global stock market, whereas some investors think that the US Federal Reserve’s interest rate hikes pose a bigger risk.

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Markets panic on policy changes

According to MarketWatchTower Bridge Advisors CEO James Meyers said, “Markets don’t handle transitions very well and we are dealing with about four simultaneously.”

First, the market is trying to adjust to the new Federal Reserve chair Jerome Powell. Second, the monetary policy is tightening with the Fed looking to increase interest rates throughout 2018. Third, the US economy is moving from no fiscal policy to an expansionary fiscal stimulus where the government is increasing spending by cutting taxes. Lastly, the US is imposing a protectionist trade policy through tariffs on Chinese imports. All this is creating confusion among investors and causing volatility in the stock market.

Markets overreacted to macro trends

In a telephonic interview with BloombergOppenheimer Funds chief investment officer Krishna Memani stated that the trade issues with China would not settle in a day. This stock market volatility is being driven by traders who are trying to guess if there could be a trade war or increased protectionism at a time when increasing interest rates are raising concerns about inflation. Thus, they are reacting to even the slightest positive or negative news.

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According to a CNBC article, J.P. Morgan US equity strategist Dubravko Lakos-Bujas stated in a note that markets are overreacting to the macro trends and most of this reaction is technical in nature and has nothing to do with fundamentals. He stated that fundamental long-term investors should consider this sell-off as an opportunity to buy at the dip.

Good opportunities?

The current sell-off presents tech investors an opportunity to take a position in growth stocks like NVIDIA (NVDA) and Advanced Micro Devices (AMD), which have had a “hold” recommendation from analysts because of their high stock price.

Investors can also take a position in Micron Technology (MU), which has a “buy” recommendation because of its cheap valuation and strong earnings potential.

Next, we’ll look into the above semiconductor stocks and look at which ones could be a good buy for long-term investors.

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