The Volatility Index Spikes On Evergrande Fears: Here's How To Play It

After last week’s stock market weakness, a deep dip on Monday may have finally created the buying opportunity many long-term investors have been waiting for for months.

Lindsey Bell, Chief Investment Strategist for Ally Invest, says investors need to stay calm and trust in the long-term performance of the S&P 500.

Volatility Spike: Bell said days like Monday often feel scarier than they really are. It may take a while for the stock market to digest the Evergrande situation, which has created a climate of fear in the markets for now.

In fact, the VIX “fear index” hit its highest level since May on Monday, and the ProShares Ultra VIX Short Term Futures ETF UVXY jumped 25.8% in mid-day trading.

Related Link: Best Way To Buy The Stock Market Dip: Dollar Cost Averaging Or Going All-In?

Bell said the key for long-term investors on days like Monday is to keep perspective. The stock market has rallied more than 35% since November 2020 without even one pullback of at least 5%, she said. Historically, the S&P 500 has averaged two 5% pullbacks per year going all the way back to 1950. Even if the S&P 500 pulls back 10% from Friday’s close, it would still be up overall 6% year-to-date.

How To Play It: For now, Bell said the most near-term volatility will likely be in emerging market stocks and banks tied to Evergrande. But she said there’s no reason for long-term investors to get too trigger-happy.

“If you’re worried about a bigger selloff on this side of the pond, think about picking up some defensive stocks or hedges. But oftentimes, sitting tight and doing nothing is best if you are in it for the long haul,” Bell said.

Benzinga’s Take: News items like Evergrande may seem like major market events, but even investors who bought the dip when Bear Stearns and Lehman Brothers went bankrupt in 2008 have made huge returns on their investments at this point.

Photo: Andrea Piacquadio from Pexels