Stocks worldwide received a welcome boost this morning by even more US monetary stimulus plans. The level of cash being doled out by governments around the world in response to the coronavirus pandemic is truly mind-blowing. The financial markets would be in much worse shape if not for this support, but the unexpected level of stimulus is causing unprecedented stock market volatility.
While the incentive helps to bolster share prices, rumours of a second coronavirus wave are having the opposite effect. Concern has been mounting in recent days as coronavirus infections spiked again in Beijing. This created fluctuations in the price of oil as the worry of low demand for longer re-emerged. However, the reality may differ from the rumours and the UAE expressed confidence that recent OPEC+ cuts are being met. This was enough to encourage traders and temporarily raised the oil price once again.
When the oil price rises, it provides a welcome boost to the stock market. So today appears to be an upbeat day for the financial markets after a dismal week. But unpredictability is paramount, and everything could head south by the time you have finished reading this article, such is the level of stock market volatility just now!
Stock market volatility
With market fluctuations par for the course, novice investors should steer clear of any day-trading ambitions and stick to buying shares in stocks worth holding for the long haul. Long-term value investing is a much better strategy to generate wealth than enduring the increased risk that comes with day-trading. We are in a period of high volatility, uncertainty and the likelihood of a market crash followed by a long recession. This may spell doom and gloom, but it also throws up the perfect opportunity to pick up high-quality stocks at rock-bottom prices.
Value investing wins hands down
The world’s economy is in turmoil and many of the highest-regarded companies are struggling. I do not think this will last forever and many of those businesses having a hard time just now, will streamline, bounce back, and thrive in the years to come.
If you have the patience and discipline to put your money to work, you can pick up some fantastic stock market bargains just now.
BP, BAE Systems and Diageo are three such FTSE 100 stocks that I would buy for a long-term portfolio, along with Rentokil Initial and my FTSE 250 favourite Tate & Lyle.
Traditionally, buying stocks that trade below their intrinsic value has been a profitable way of generating lasting wealth. It has certainly proved its worth many times over for billionaire Warren Buffett. With a long-term investing mindset you should welcome stock market volatility as the perfect opportunity to buy cheap shares.
