Indicators of Choppy Markets Going Forward | ETF Trends

Markets that have been riding high on tailwinds from the COVID-19 economic recovery of last year and early into this year are starting to hit periodic headwinds that are slowing their momentum. This cycle is turning more towards headwinds looking forward, with the anticipation of turbulent markets, according to Mark Hackett, chief of investment research for Nationwide.

As of October 28, the S&P 500 was up 23% year-to-date in a year that has seen continuous record highs from markets. 63% of financial professionals surveyed in Nationwide’s Advisor Authority study have a positive outlook for markets looking forward 12 months, but only 49% of individual investors reported the same optimism.

Image source: Nationwide’s blog “Signs of market turbulence ahead”

With the monetary and fiscal stimulus having ended and the Fed beginning to taper off bond purchases, headwinds are becoming stronger. Add to that the concerns of economic slowdown, and it makes for uncertain times for a lot of investors.

“There’s also a sense that the best growth for the economy is behind us; the first estimate of Q3 Gross Domestic Product growth came in at annual 2.0% rate, still positive but much weaker than the strong growth seen in the first two quarters of this year,” Hackett writes.

Fears of inflation, concerns over rising interest rates, and reduced economic growth are reflected in the drawbacks the market has experienced recently. The confidence of investors has dimmed, despite the Fed doubling down on its analysis that the inflation being seen currently is only transitory. It is unknown what kind of event it would take to send the markets into correction, but it clearly is an increasing concern for investors of all kinds.

“Preparing in advance for market downturns and crises is essential to help keep investors on track toward their long-term goals. Diversification is a solid strategy for managing the risk of market losses, but it’s also important to stick with a strategy that aligns with your tolerance for risk and stay invested for the long term through all the market’s ups and downs,” says Hackett.

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