Uncertainty in the markets can cause investors to make snap decisions. The U.S. election saw the markets flipflop as the democrat landslide failed to materialize. While Joe Biden has since emerged as as the president-elect, the politics of our southerly neighbours remain starkly divided. The pandemic has also thrown mixed messages into the news cycle, with rising cases pitched against vaccine hopes.
Stock market volatility continues
But uncertainty itself is not the problem. The markets were bathed in uncertainty last year. From weak oil to the trade war to valuation anxiety, 2019 had worries aplenty. But investors carried on buying right up until the March crash. Instead, the real problem right now is indecision. This can be seen in the way that the TSX Composite Index has flattened out this week.
Investors are beginning to ease back out of value stocks. But growth stocks are also slowing down at the same time. The markets are holding their breath. Markets are weighing such disparate stocks as Aphria against names like Barrick Gold and Newmont. Both asset types have seen intense momentum this year but are now grinding to a halt.
This holding pattern is fairly rare in 2020. The year to date has been typified by wildly oscillating momentum. Huge dips have been offset by heroic rips. But the current sentiment is becoming somewhat neutral. While greed has lately predominated over fear, stocks are nevertheless caught between rapidly alternating patterns.
Indeed, the CBOE Volatility Index (VIX) is currently pointing to 22.19. This sometimes overlooked indicator shows a neutral market right now. The amount of 52-week highs compared to yearlong lows is also fairly neutral at the moment. This neutrality belies a market that could flip either way.
Keep cash on hand for buying opportunities
The situation probably won’t last long, though. The vaccine bullishness that has been buoying the markets is already beginning to turn into a disillusioned selloff. With businesses still reporting earnings, there may be some upside still to be gleaned, especially from bank stocks. A resolved political situation south of the border could also help to lift stocks.
However, vaccine hopes are still 2020’s fairy gold, turning into sacks of leaves overnight. Until the uncertainties in the market are erased – from U.S. election shenanigans to the pandemic itself – then the selloffs will keep erasing the rallies.
It will take a successful vaccination program to kickstart a sustained bull run. And even then, the uncertainties that preexisted the pandemic will have to be mitigated.
Until then, bargains can still be had. Look at Aphria, for instance, down 1.3% at the time of writing. Barrick is down by the same amount,which renders both stocks key contrarian picks this week. As the reality of the pandemic continues to sink in, investors are going to be selling a lot of quality picks.
Value opportunities are therefore likely to continue opening up. By buying shares while they’re in the red, investors can continue to keep calm and carry on building positions.
Buying quality stocks for retirement? The following report could significantly improve your portfolio.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.