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What’s Driving Volatility, and What Could Be Next?

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March 13, 2020

The Dow Jones Industrial Average dropped 10% on Thursday—the worst single-day drop in more than 30 years1—offering fresh evidence of the severe effect the coronavirus is having on markets, as well as people’s health. “This is a shock unlike what we’ve seen before,” says Michelle Meyer, head of U.S. Economics for BofA Global Research. “People are fearful, and they are responding.” Yet while the U.S. economy may “flirt with falling into recession” in the second and third quarters, containment of the virus could still lead to a turnaround this year, she says.

 

In a new audiocast, Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, and experts from BofA Global Research share their thoughts on what’s driving the volatility, how long it may continue, and when we might see the return of long-awaited stability. Listen to their conversation below.

 

Now is the time to develop a plan of action so that it's ready to put into place when volatility subsides. says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. Listen to the audiocast for more insights.

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Hyzy leads this important discussion featuring:

  • Mark Cabana, Head of U.S. Interest Rate Strategy, BofA Global Research
  • Michelle Meyer, Head of U.S. Economics, BofA Global Research
  • Savita Subramanian, Head of U.S. Equity and Quantitative Strategy, BofA Global Research
  • Michael Hartnett, Chief Investment Strategist, BofA Global Research

 

What investors can consider doing now
One of the hardest things for any investor to do right now is also among the most important: Hold tight, Hyzy says. But holding tight doesn’t mean doing nothing. “Now is the time to develop a plan of action so that it’s ready to put into place when volatility subsides.”

 

Investors should prepare to rebalance or work with an advisor to rebalance portfolios thrown out of kilter by the volatility and consider new opportunities. “We’re still in the early stages of understanding the full impact of the COVID-19 coronavirus on the economy and specific industries,” he adds. “Given that we expect volatility to remain in the near future, we also continue to emphasize diversification at the asset-class level and within asset classes.”

 

“Dow Plunges 10% in Worst Drop Since 1987 Market Crash Amid Coronavirus Fears,” MarketWatch, March 12, 2020.

 

Information is as of 03/13/2020

 

Opinions are those of the authors and are subject to change.

 

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group (“ISG”) of GWIM, a division of Bank of America Corporation (“BofA Corp.”).

 

BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation.

 

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

 

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

 

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

 

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

 

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

 

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. 

 

 

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