Here's a 3-Step Approach to Navigating Volatility As Macro Risks Flare Up

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What in the world should an investor do, considering the fact that tariffs and controversial central bank policy remain risks to an already sowing global economy?

The S&P 500, after having briefly dipped to a 12% year-to-date gain on account of Trump's added 10% to 25% tariff threat on Chinese goods, is back up to a roughly 17% gain for 2019.

Meanwhile, the ten year treasury is yielding 1.7%. Bond yields fall when their prices rise. The bond market has priced in more than the 25 basis point rate cut made in July. Now, investors are rushing into treasuries, as the tariffs threaten to further destabilize global economic growth.

Here are a few words of advice from Interactive Brokers' chief strategist and head trader, Steve Sosnick. 

Go to Cash For the Near-Term

"Presumably, if you've been in the market, you've had great returns, whether it's stocks or bonds," Sosnick said. "Volatility is increasing, which sort of begs the question, unless you have a real conviction, perhaps you may want the option of being in cash that you want to deploy later." 

Sosnick added, "Warren Buffet has said that basically owning cash in a portfolio is as good as having call options," Sosnick said. "If the price of your call options are going up, wouldn't you want to own the option to be able to buy things when you see prices more favorable or, or situations a bit more clarified?"

Stay Exposed to Stronger Economies

"If you've got the world's strongest economy and you can argue that by certain measures we do {U.S. does}, whether it's us, whether it's China, if you can believe those numbers, arguably we have a solid economy growing at a good rate, as opposed to most other currencies and countries. Why would you, why would you not want to own the currency that is of the country that's doing well," Sosnick said. "And so yes, we have higher interest rates, but there's a reason for that and there's an interest rate advantage." 

Know the Broader Market Dynamic

"Fear of missing out" has driven U.S. stocks back up to levels close to those of late July, Sosnick said. 

"FOMO. And I think what happens is, that's why you see such sharp moves. When the market sells off, it's, it's clear that somebody had to sell or over the past couple of days and that happens. There's any number of things that happen. But as you saw the market sort of peter out to normal, they did sort of feel sold out at some point on Wednesday, which is when we started to see futures bounce off the lows and the equity markets move higher."

For Sosnick's entire approach, watch the video above. 

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