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Stock market volatility to continue, analyst says

FILE- In this Feb. 5, 2018, file photo, a board above the trading floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average.
FILE- In this Feb. 5, 2018, file photo, a board above the trading floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average.
Richard Drew, Associated Press

SALT LAKE CITY — After a week of roller coaster volatility in the stock market, one local financial expert expects the ride to continue through at least part of the rest of the year.

Speaking Friday to an audience of approximately 140 at the Little America Hotel, Alan Tingey, principal with Tingey Advisors, said the exceptional growth of the market over the past couple of years and the big rise in January were signs that observers should have begun to expect the dramatic shift in the Dow Jones Industrial Average that shocked many this week.

He said history has shown that markets can't sustain constant growth without some episodes of decline.

Worst one-day (percentage) losses in Dow Jones Industrial Average history.
Worst one-day (percentage) losses in Dow Jones Industrial Average history.
Heather Miller, wall street journal

"We had two back-to-back years of strong, above average performance and January comes along and was up 7 percent," he explained. "In a way, we were kind of due for a correction."

That correction sent stocks falling from a previous record-setting high above 26,000 down 4.6 percent in one day, creating anxiety among investors big and small, he noted. However, from a historical perspective, it was ranked as just the 99th largest one-day percentage decline in the index's existence, he explained to the audience.

While it may have felt like a big deal, from a macro perspective, it was not as significant as previous single-day drops, he said. For instance, in October 1987, the market lost 22.6 percent of its value on what become infamously know at "Black Monday." While this week's declines were much less dramatic, he said the market may have more similarly distressing days ahead this year, he said.

"We think volatility will continue at a higher level than it was last year," Tingey said. "Last year was remarkably low — among the lowest 1 percent of volatility in history. It was a very smooth year."

As a caveat, he explained the market will likely continue to rise, just with a few more roller coaster days along the way, he said.

"A week like we've seen this week is not unusual," he said. "It's very normal to have fairly dramatic corrections in the market almost every year."

In offering an outlook for the year, he predicts corporate profits will climb 10 percent to 12 percent this year — well above the 7.5 percent corporations pocketed in 2017. The potential increase is based in large part on the effect of the recent tax reform measure passed in Congress in December, he said.

For stocks, on the other hand, he forecasts a moderate 5 percent to 9 percent rise by year's end. Tingey said the forecast for the year is mostly positive with many components in place to grow the economy and the markets in the coming year.

"On the stock side, we are moving forward cautiously in this turbulent market," he said. "We feel the stock market will be in positive territory over this year."

The one major concern for the economy and financial markets in 2018 is the increasing burden of national debt, which is outpacing the nation's annual gross domestic product — the financial measure of the market value of all goods and services produced yearly.

"It's a long-term concern. Our politicians should be focused on trying to reduce the debt level," Tingey said. "It's definitely something that needs to be addressed by (Congress)."

Failing to control the debt could heavily impact the country's economic future, he said, by potentially driving up interest rates and increasing inflation.

For attendee Dan Evans, 53, the recent market volatility is indicative of cycles that occur from time to time. Realizing the cyclical nature of the economy and the stock market, he was generally comfortable with the predictions made during the presentation.

"(The market) is always up and down, but it's generally up over the long term. I think that will continue," he said. "A little volatility is a little more exciting than a slow upward trend. It creates more opportunities to buy (shares at lower costs)."

He noted that one issue of concern is the increasing national debt that could become a big problem if it's not properly addressed.

His wife, Clare Evans, 36, who described herself as "by nature, more pessimistic," was a bit less cavalier about the prospects for market unpredictability, which is much less palatable to her. However, her anxiety was eased somewhat after listening to all the information that was presented.

"It definitely stresses me out more than (him)," she said. "(After hearing the presentation), I feel a little more optimistic."