May 31 - With daily price swings returning to financial markets, strategists and portfolio managers say volatility is the new normal and investors may have to adjust accordingly this summer. Havovi Cooper reports.
The word of the week--volatility. And that may be the word of the summer. Market corrections that usually take days and months are now happening in a matter of hours and minutes. Peter Kenny of Knight Capital says this may be the new normal. SOUNDBITE: PETER KENNY, CHIEF MARKET STRATEGIST, KNIGHT CAPITAL (ENGLISH) SAYING: "Volatility will now become the normal metric as markets start gauging in or pricing the sense or timing that the U.S. Federal Reserve is going to start discussing more and more openly the prospect or time frame for the introduction of a tapering off of quantitative easing." And as investors fret over the Fed's timetable, they're trying to stay one step ahead of Ben Bernanke, in some cases--by slowly moving away from bond funds. But investors may be jumping the gun. Friday's reading on personal income and consumption shows inflation is nowhere near the Fed's target of two percent. Based on that data, Brian Jacobsen of Wells Fargo Funds is taking the contrarian view. SOUNDBITE: BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO FUNDS (ENGLISH) SAYING: "My expectation is that the Federal Reserve is actually going to increase the pace of their asset purchases over the short-term. So either, at the June meeting or shortly thereafter they may announce that they're going to expand the size of their purchases for their mortgage backed securities." Confused? Well, don't be... even though 'volatility is in the air', the stock market rally is here to stay. SOUNDBITE: PETER KENNY, MANAGING DIRECTOR, KNIGHT CAPITAL (ENGLISH) SAYING: "I wouldn't say bail on the market, not by any stretch, not by any means. In fact, I would say the market remains in a confirmed uptrend. There is still opportunity. The three legs that led this market higher, the three sectors technology, home-building and financials remain very, very compelling." SOUNDBITE: BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO FUNDS(ENGLISH) SAYING: "The volatility in the market isn't necessarily pointing toward a change in direction for the market so I expect in the longer-term, over the next year or so that we're actually going to see prices higher than lower." But analyst say don't expect the straight, up line the market's enjoyed for most of this year, which means investors will have to get reacquainted with gut-wrenching gyrations--without losing focus on the long-term.