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Today is shaping up to be another casebook study in stock market volatility.
The markets today, viewed several hours before the opening bell at 9:30 a.m. EST appear to be signaling a slowing of yesterday’s rally. At time of writing one of the major North American indicators – the DOW -- is very tentatively in the green while two others -- the NASDAQ and the S&P 500 are firmly in the red. In fact, the North American indicators have been slowly sliding overnight. These indicators are so volatile that they are literally changing as I write this column and can change further before and during the trading day.
The European market is open at time of writing and indicators there are also mixed: the FTSE 100 and CAC 40 are barely in the green while the DAX is firmly in the red.
It is possible that yesterday’s rally will continue today but at a very reduced pace and that it could be followed by a pullback during the week, as stock valuations rose extremely high on Monday. The euphoria triggered by reports from Pfizer Inc. and the election of Joe Biden generated huge increases in valuations and profit-taking, but it is unlikely that the increases could continue on the same scale today.
Even President-elect Biden attempted to add a note of caution by pointing out that the virus vaccine process had to be handled carefully to ensure its safety and efficacy. He warned of the coming of a ‘very dark Winter’ and that the vaccine likely would not become available for several months, according to a Reuters report.
Notwithstanding the good news from Pfizer, Biden attempted to add a strong layer of caution to the outlook. “I implore you, wear a mask. Do it for yourself. Do it for your neighbor. A mask is not a political statement,” he said in the same Reuters report.
From an investment point of view, some investors may be wondering about investing in vaccine-related companies such as Pfizer Inc., AstraZeneca PLC and Moderna Inc. Alternatively, investors who hold these stocks may be wondering about profit-taking or adding to their positions.
These stocks are very volatile, all the more now after yesterday’s news. The share prices of those stocks rose dramatically yesterday and could rise again today but whether those new price levels can be sustained over time remains to be seen.
When I tell investors that the first goal of investing is not making money, I usually see popped heads and quizzical looks. However, it’s true – the first goal of investing is not making money. That’s the second goal. The first goal of investing is not losing money.
That being the case, investors should approach these stocks with caution at this time – or at any other time. While these stocks are tempting, this is another issue that underlines the importance of the advisor’s role as financial counsellor. There are a large number of unknowns with vaccine and vaccine-related stocks. As well, stocks that are this volatile may or may or may not have a place in a specific investor’s portfolio.
This kind of investment can constructively be discussed with a knowledgeable financial advisor who can provide a buffer between the euphoria of today’s market and the investor’s long-term objectives and needs.
Disclosure: While I periodically highlight the role of the financial advisor and their contribution to an individual’s financial health in these columns, I am not now and have never been a licensed financial advisor looking to recruit new clients, (though I can appreciate that some might take that impression.). As a journalist I have interviewed upwards of 300 licensed advisors in several countries over the years and believe that I understand what they bring to their clients.
Related: The Markets This Week Could Provide a Textbook Case of Volatility