The market at a glance

This week, we saw a slight decline in all three main U.S. equity markets (as of Thursday at market close). Both the Dow Jones Industrial Average (DJIA) and the NASDAQ were down (-0.2%), with the S&P 500 (SPX) also down (-0.1%). This downswing didn’t stop the Russell 2000 Index (RUT) from reporting positive results though. The RUT, a lesser-known index made up of small capitalization companies, hit its second straight day of record highs, closing at +0.6%.

Geopolitical tension is a possible cause of a market fluctuations

Geopolitics often has an influence on the stock market due to the uncertainty and negative sentiment it can cause investors. Recent political headlines are no different, and may have been partially to blame for the slight decline in some U.S. stocks.

In Washington on Tuesday, a second round of trade talks began with China to prevent a tariff battle with the Trump administration. Also, the leader of North Korea, Kim Jong-Un, has threatened to cancel next month’s summit meeting with President Trump. The threat came after the U.S. made demands that North Korea abandon its nuclear efforts.

Could volatility increase again this year?

The slight decline in some U.S. stocks is a reflection of a relatively calm month for the markets. Some experts, however, are predicting that a storm may be brewing. Volatility is expected to go up for the month of June as well as in the second half of the year. You may find yourself questioning how stock market experts make these predictions around market volatility.

How do the experts predict volatility?

Most analysts aren’t looking into a crystal ball, but instead refer to the CBOE Volatility Index (VIX), which is calculated and published by the Chicago Board Options Exchange (CBOE). Also called the fear index, the VIX is a popular measure of the stock market’s expectation of volatility over the next 30 days.

Volatility has been continuously decreasing since the beginning of April, leaving many investors feeling optimistic -- but is low market volatility here to stay? The month of May has historically been calm since the VIX was introduced in 1993, so this month’s positive reports have been no surprise. However, the second half of the year has often been when the VIX hits its annual peak in volatility, with August and October being especially volatile.

High volatility doesn’t necessarily translate into negative returns for investors. If we look at past stock market patterns, years with high volatility have resulted in SPX average returns of +1.9%. In other words, increased short-term volatility doesn’t necessarily mean short-term losses, only time can tell for sure.

The markets are cyclical -- MoneyLion Plus has you covered

It’s important to recognize that the market, like most things in life, moves in cycles. It has typically risen, peaked, and then declined before continuing to rise again. It’s these up and down movements that underscore the importance of diversification and a long-term view for investors. With your MoneyLion Plus managed investment account, you are exposed to a mix of both stocks and bonds of both domestic and international companies. We are in it with you for the long run.

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