Is the Current Market Volatility 'Normal'?

Summary

---

WSJ Your Money Briefing

Episode Title: Is the Current Market Volatility 'Normal'?
Air Date: October 24, 2018
Host: J.R. Whalen
Guest: Kate Warne, Investment Strategist at Edward Jones

---

Brief Overview

This episode focuses on the recent stock market volatility leading into the 2018 U.S. midterm elections, offering context on whether these market swings should cause investor alarm. Host J.R. Whalen interviews Kate Warne to break down whether this volatility is "normal," the impact of tariffs, interest rate changes, and political uncertainty, and offers practical guidance for investors navigating turbulent markets.

---

Key Discussion Points & Insights

1. Is Current Market Volatility Normal?

• Kate Warne frames the recent choppiness as a return to historic norms:

  • Annual 5% pullbacks and even a 10% correction are historically common.
  • The day-to-day volatility may feel higher, but this is in line with long-term patterns.

  Quote:

  “This is very much in line with what we’ve seen historically...think of this as just markets adjusting, getting back to a normal level of equity market volatility.” – Kate Warne [02:44]

2. Putting Point Drops in Perspective

• The media reports large point movements (e.g., several hundred points on the Dow), but because the market has climbed so high, a 300-point move is only about 1%.

  Quote:

  “A 1% move in the Dow is about 300 points. Those numbers look really big, but they actually aren’t much in terms of how much the market is really moving.” – Kate Warne [03:26]

3. The Tariffs Wildcard

• Most announced tariffs have not yet been implemented; those that have are only slightly affecting prices and economic growth.

• The bigger risk would be an escalation to a full trade war, especially with China, but this is not expected.

• Investors are advised against “knee-jerk” reactions to tariff headlines.

  Quote:

  “While tariffs sound scary, it simply raises prices either for company inputs…or it’s directly higher prices at the store.” – Kate Warne [04:51]

4. Interest Rate Increases

• The recent eight increases in short-term interest rates are expected; the Federal Reserve aims to get policy back to a normal range.

• Interestingly, long-term rates (impacting auto loans and mortgages) have not risen as swiftly as short-term rates.

• This dynamic has contributed to October’s higher volatility, but neither sharp short-term nor sharp long-term increases are predicted.

  Quote:

  “Short term interest rates, we do expect to continue to rise slowly over time as the Fed tries to just get policy back into a more normal range.” – Kate Warne [05:48]

5. Politics & Investing—Keep Them Separate

• Political “noise” is heightened ahead of the midterms, but historically, markets and the economy have risen under all political combinations.

• Don’t let election uncertainty keep you out of the market; historically, midterm years deliver strong market returns in November and December.

  Quote:

  “The stock market has risen under all political combinations in Washington and the economy has grown under all political combinations...if you’re invested, you need to stay invested…” – Kate Warne [07:02]
  “The market is more powerful than politics.” – J.R. Whalen [08:08], referencing Edward Jones research

6. Advice for Investors

• Use volatility to buy good stocks at lower prices.

• Focus on diversification.

• Don’t let headlines or short-term uncertainty alter long-term investment strategies.

  Quote:

  “Use the volatility we’re seeing to add quality stocks at lower prices. Make sure you’re building a better diversified portfolio and don’t take this as some sign that the news ahead is bad.” – Kate Warne [08:14]

---

Notable Quotes & Memorable Moments

• On volatility context:
  “No, I actually think this is a return to normal market volatility.” – Kate Warne [02:44]

• On tariff impact:
  “If we continue to see an escalation of tariffs or a big trade war with other countries…we could see a more significant impact. We don’t expect it, ...but I think investors need to keep in mind that that’s a risk out there.” – Kate Warne [03:53]

• On political uncertainty:
  “As your investment portfolio grows over time, it’s going to do okay regardless of what happens. It may just be a little faster or a little slower.” – Kate Warne [07:02]

---

Timeline & Timestamps

• [02:44] – Discussion on market volatility as a ‘return to normal’
• [03:14] – Putting Dow point moves in percentage terms
• [03:44] – Impact and current status of tariffs
• [04:51] – Advice against overreacting to tariff news
• [05:32] – Context on interest rate increases and their effects
• [06:41] – Why not to mix politics and investing, especially around midterm elections
• [08:08] – Edward Jones research: “the market is more powerful than politics”
• [08:14] – Using volatility as an investment opportunity

---

Takeaways

• Recent market swings are typical in a historical context—avoid panic.
• Large point declines should be viewed as percentages for perspective.
• Most tariffs are more threat than action; escalation to a trade war remains a risk, but isn’t likely.
• Fed interest rate hikes are expected and not cause for alarm.
• Political uncertainty shouldn’t drive investment decisions; stay the course and look for value amid volatility.
• Diversification and a long-term outlook are essential tools for investors in turbulent times.

---

Transcript

[A]

This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.

[B]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Ongoing market volatility and all the political noise leading up to November's midterm elections can create some confusion for investors and those wanting to get in the investing game. We'll clear things up in a moment. First, these money and market stories you should know the number of U.S. households without a bank account fell to 6.5% last year. The FDIC says the decline in so called UNB American households can be attributed to what it calls improvements in the socioeconomic circumstances. Lower income households and households that are less educated have higher rates of being unbanked or underbanked. A person classified as underbanked has an account at an insured firm, but also uses financial services outside the traditional banking system, such as payday loans or check cashing services. And the Wall Street Journal Real Estate Bureau reports that shareholder activist William Ackman is in contract to buy a penthouse on New York's upper side for close to its asking price of $22.5 million. The property was formerly owned by the late author Nancy Friday, who wrote books on female sexuality. She assembled various units in the building, including one from her neighbor, the performer and composer Peter Allen. The Journal says the units could be combined into a 13 room, 4200 square foot space with a 3200 square foot terrace. The room has barrel vaulted redwood ceilings in a secret room accessible by pressing on a hidden panel in a decorative column. Ackman, who was the founder of Pershing Square Capital Management, last year bought two units in a nearby building for a combined $22 million. After several months of nearly straight upward climb by the stock market, October has brought very choppy waters with broad sell offs coupled with wild swings. What's the best move for investors when Wall street is so uneasy? We're joined by Kate Warren, investment strategist at Edward Jones. So Kate, you don't see the current dip in instability on Wall street as unusual?

[C]

No, I actually think this is a return to normal market volatility. It's certainly been a little more of a surprise than I think many investors were expecting because the day to day volatility has been higher. But this is very much in line with what we've seen historically where there have been 3 or 4, 5% pullbacks every year and one correction or 10% pullback on average every year. So think of this as just markets adjusting, getting back to a normal level of equity market volatility.

[B]

And because the Dow for one has been so high, if you get a larger percentage drop than in previous years or in previous decades, it's not as precipitous a drop.

[C]

Well, what we're seeing is multiple hundred points a day. I think what people don't realize is a 1% move in the Dow is about 300 points. Those numbers look really big, but they actually aren't much in terms of how much the market is really moving. I think that's important to put into perspective.

[B]

You see the constant threat and implementation of tariffs as a wildcard. Could that change your outlook in terms of the market going forward?

[C]

Well, so far what we've had is lots of tariffs announced and not many of them have actually been implemented, even with the $200 billion in tariffs that were implemented a few weeks ago. So I think investors need to put that in perspective and realize that we will see slightly higher prices in the US we will see slightly slower US Economic growth as a result. But so far that's all been something that's pretty small. If we continue to see an escalation of tariffs or a big trade war with other countries, especially China, I think we could see a more significant impact. And that's really what we're concerned about. We don't expect it. We do think this is more of a negotiating strategy, but I think investors need to keep in mind that that's a risk out there.

[B]

So in terms of the current tariffs landscape, which is more threats than action, you recommend against knee jerk reactions to that specifically?

[C]

That's correct. And I think that investors need to keep in mind that while tariffs sound scary, it simply raises prices either for company inputs and in this quarter's earnings, we're hearing more companies talk about how their costs have gone up as a result of tariffs or it's directly higher prices at the store. And consumers do need to be aware of the fact that we'll see some prices rise. That's not terrible news, but it's something to prepare for. As we're all seeing a little bit higher prices. And I think that's a risk for long term investors because a little bit higher inflation means you need to be sure you're prepared with rising income over time.

[B]

And the current interest rate escalation we've seen, which has been 8 increases over the past five, maybe three to five years, that's been expected. That's been baked into the market. And if this interval of rates increases continues, that's fairly expected also.

[C]

Well, certainly it's not a surprise that the Federal Reserve is raising short term interest rates since they were kept at zero for such a long time and everyone was concerned about that. I think though, that whenever we see rates increase, it leads investors to start reassessing the future. And that's really part of what's happening with this volatility as well. So short term interest rates, we do expect to continue to rise slowly over time as the Fed tries to just get policy back into a more normal range. The surprise this time has been that long term interest rates, which are really tied to auto loans and mortgage rates, haven't risen as much as short term interest rates. They have picked up some. And that's part of the reason we've seen the higher volatility here in October. That's likely to continue as well, although we don't see a sharp increase in either short term or long term interest rates.

[B]

All right, so let's look ahead to the next couple of weeks. You have some advice for investors that is very timely for the middle of October, and that is don't mix politics in investing. There's a lot of political noise out there, a lot of discourse as we get closer to the midterm elections that should not, in your opinion, impact people's investing activities?

[C]

That's correct. And I think many investors, and certainly many voters think about the midterm elections as something that could make a huge difference either in their portfolios or in the direction of the country. That may be correct. But it turns out that the stock market has risen under all political combinations in Washington and the economy has grown under all political combinations. Now there are differences. So don't take this as some comment that says elections don't matter. They actually matter a lot. But as your investment portfolio grows over time, it's going to do okay regardless of what happens. It may just be a little faster or a little slower. What we think in particular is if you're invested, you need to stay invested because it turns out that midterm election years tend to have pretty good market returns in November and December, better than average in all years. And more importantly, if you're sitting on the sidelines, don't let the election uncertainty and the worries about what might happen keep you from putting money to work.

[B]

And I guess that this is the embodiment of a note that was in Edward Jones research that the market is more powerful than politics.

[C]

Absolutely. When you look at what drives stock prices over time, it's not politics. It certainly can cause short term uncertainty, but it really is the underlying fundamentals of economic and earnings growth. And again, those look positive to us today. And that's why we'd say use the volatility we're seeing to add quality stocks at lower prices. Make sure you're building a better diversified portfolio and don't take this as some sign that the news ahead is bad. We just think short term markets are returning to their normal type of volatility.

[B]

All right, that is Kate Warren, investment strategist at Edward Jones, here in our studio with us. Kate, thanks for being with us.

[C]

Thank you.

[B]

And that's your money briefing. I'm JR Wehelan in New York for the Wall Street Journal.

[A]

Still running global payroll like a relay race. Deal replaces fragmented Payroll vendors with one global system. No third parties. Hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP NetSuite operate like a local everywhere. Visit d e e l.com WSJ that's d e e l.com WSJ.