What does the financial news media mean when they say, “brace for more market volatility”?

Over several decades in the investment business, I have consumed many thousands of hours of financial news from the likes of CNBC and Fox Business News. Over that same time period I have heard the term “market volatility” used ad nauseam by news anchors and Wall Street analysts in reference to every kind of investing situation. I would guess you have, too.

Here are several recent examples from a CNBC print article on their website Brace for More Market Volatility in the Second Half of 2013. http://cnbc.com/id/100848558

“Investors, buckle your seat belts. Markets in the second half could be driven by more volatility, though most strategists expect equities to ultimately end the year higher than their current levels.”

“The recent volatility in stocks and bonds will likely be with us for the foreseeable future (at least a few months),” wrote strategists Stuart Freeman and Scott Wren of Wells Fargo.

“Strategists expect markets to continue zigzagging near-term, as investors struggle to adjust in the face of a rising yield environment and grapple with the reality that the Federal Reserve could begin to wind down its $85 billion a month bond-buying program before 2014.”

What is “market volatility?”

Volatile markets are markets where the price moves vigorously and unpredictably. Another way to say it might be; markets are moving up and down quickly and with price swings greater than normal.

Is it anything to worry about?

Not in the least! Markets always move erratically and are completely unpredictable over the short-term.  This has been true throughout history and always will be. In fact, it’s the nature of free markets and a free flow of information around the world. Today’s global markets, tied together by an electronic network unimaginable just decades ago, react to new information and set prices in the blink of an eye.

Here’s another way to think about it. Just imagine if prices weren’t “volatile”; if they moved in a steady direction and you could predict or knew where the markets were headed for just the briefest period of time? You could make enough money to buy CNBC! Of course, that’s not how it works and that’s part of the reason markets are volatile. No one can predict the future – especially in such a large complicated environment as global investment.

By the way, if you hear someone say they know where the market is going or a specific security is headed, politely turn and head the other direction. Consider this; if they really knew, why would they be telling you?

So why does the financial media keep using the phrase, “market volatility?” Because it’s a given that markets will be volatile and they can’t be wrong. In other words, it’s really an admission that they just don’t know. Wall Street doesn’t know what’s going to happen with the markets any more than you do. Of course, they might make their prediction on the direction of the market and add, “But we expect a period of volatility.” Well, thanks for the great insight. How much do you get paid to say that?

One of the most powerful and brilliant business leaders in history, John Pierpont Morgan probably said it best. When asked by reporters what the stock market was going to do in the future, he said, “It will fluctuate.” He knew he could never be wrong.