- Investors have often treated volatility as their enemy, as it’s usually associated with falling stock prices.
- But the Federal Reserve’s near-decade-long practice of quantitative easing has turned volatility into an investor’s best friend, according to Jim Paulsen of The Leuthold Group.
- Here’s how investors can take advantage of a likely upcoming scenario where volatility pays off.
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Volatility can be a scary word on Wall Street, as it likely brings back painful memories for investors who experienced swift and sharp price declines in the stock market.
Whether it was the 1987 crash, the popping of the dot-com bubble, or the 2008-2009 financial crisis, a spike in volatility has scarred investors and conditioned them to panic for the exits.
But according to Jim Paulsen, chief investment strategist of the Leuthold Group, a certain scenario of market volatility can be an investor’s best friend, as forward returns have historically proven to be strong for stocks.
In a recent client note, Paulsen laid out the environment where investors should get bullish on stocks amid a rise in volatility, primarily thanks to the Federal Reserve’s ongoing quantitative easing policies.