Market volatility is taking the air out of some speculative bubbles — and that's not a bad thing for long-term investors, UBS investment chief says
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- Market volatility has soared this year, and that's helping to deflate some speculative areas of the market, according to UBS.
- UBS highlighted bitcoin's tumble of more than 20% in early 2022.
- The VIX volatility gauge has rocketed up by 90% so far this year.
A gauge of market volatility has nearly doubled in early 2022 as investors rattled by rate-hike prospects have dragged the S&P 500 into correction territory, but the volatility is serving to deflate some speculative areas, says UBS.
Wall Street's so-called "fear gauge" has jumped 90% year to date through early Tuesday's session, during which the Cboe volatility index climbed as much as 15% as stocks fell. The S&P 500 and other major equity indexes were lower before the start of the Fed's policy meeting on Tuesday.
The meeting is likely to underscore the Fed's shift in policy priorities away from supporting growth and toward fighting inflation, and "the sense of market insecurity has not been helped by weak [financial] results among some of last year's big stay-at-home winners," said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note published after the market's wild ride on Monday.
The short-term market direction can remain volatile with a number of critical market factors still in flux, including a brewing conflict between Russia and Ukraine and the continued rollout of corporate earnings reports and guidance, he said.
"But for longer-term investors, we don't think it is a bad thing if market volatility takes some of the air out of the more speculative corners of the Market," said Haefele.
To that point, he noted bitcoin's more than 20% tumble so far this year. Bitcoin over recent sessions had crashed to a six-month low below $38,000. Cryptocurrencies as a whole have been slammed down alongside stocks. The International Monetary Fund this month said bitcoin and large-cap US stocks have been moving more in line with each other since the COVID-19 crisis unfolded and that tighter correlation can pose risks to financial stability.
It's also not a bad thing if current volatility means some secular growth names are being offered at their best prices in months, said Haefele, referring to stocks that tend to perform well even if global economic growth slows more than markets anticipate.
"Meanwhile, it's important to remember we remain in a very strong economic growth environment, which should stay supportive of cyclical and value sectors in the short term. We keep our end-2022 S&P 500 price target of 5,100," he wrote.
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