In addition to bringing down Lehman Brothers and other “too-big-to-fail” financial institutions, the market collapse of 2008 launched an era of incontrovertible economic uncertainty. The subsequent ripple effect of the downfall–triggered by the liquidity crunch, the sub-prime mortgage crisis, and a bevy of other convergent factors, continues to be felt today. While indicators like the recent 6.6% jump in Black Friday sales following months of up-and-down U.S. consumer spending patterns suggest early recovery, other post-crisis macroeconomic news and events routinely jolt The Street back down a peg.
Take, for example, the S&P’s recent decision to downgrade its long-term U.S. credit rating from AAA to AA, provoking an unprecedented four triple-digit swings within a five-day period, during which the Dow Jones Industrial Average would drop 4% one day, only to spike 4.2% the next. While this scenario represents the extreme end of the volatility spectrum, it nevertheless illustrates how market volatility is poised to stick around-at least for a while, anyway. Yet this doesn’t necessarily mean a bleak picture for investors. On the contrary: a well-executed portfolio exploits the very market swings that typically strike fears in investors, can win enviable returns, regardless of the economic climate we are in.
Multi-Pronged Approach
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