VOLATILE - tending to vary often or widely, as in price. Inconstant, fickle. These definitions of “volatile” can certainly be applied to the stock market and we thought that seeing the definition in print was a good idea as it does not specifically pertain to one direction or the other. For example, when the stock market moves wildly to the upside it can certainly be described as volatile just as accurately as if it had moved to the downside.
Expect more volatile days throughout the Summer as investors deal with issues outside the United States (Europe, China, etc…) as well as inside (the Presidential Election, dealing with the debt ceiling, expiration of Bush Era Tax Cuts). However, we believe that within reason, adding to equities on the volatile DOWN days makes some sense. Continue to move toward companies with dominant market positions selling at reasonable valuations. If you are investing in mutual funds, look for large-cap dividend paying funds that will cushion the blow should stocks move downward.
Regarding fixed income, it is more of the same. Add to positions. Keep your duration less than ten years and mix in high-grade and low-grade corporates with U.S. Government Agency Bonds. Use U.S. Treasuries for stability.
The bottom line — everything in moderation.