After a relatively sleepy few years, stock market volatility began to raise some eyebrows again in the final quarter of 2014. Russ Koesterich discusses the return of volatility and what it may mean for the stock market and investors.

Why the pick-up in volatility? The increase in volatility does not necessarily come as a surprise. Volatility had been unusually subdued for quite a while, and the pick-up was reasonable in an environment where stocks had run hard for an extended period. It wouldn’t necessarily take a lot to trip them up. Now, there was no single catalyst for the change in market tenor. We’ve had tensions in the Middle East and Russia and Ukraine, concerns about slowing growth in Europe and, perhaps most importantly, anticipation of interest rate hikes by the U.S. Federal Reserve. It was almost inevitable.

Will volatility remain elevated? I’d use the term normal. To a large extent, the rise in volatility points to a return to a more typical environment. Still, volatility will be higher than investors had become accustomed to, and that won’t necessarily feel good. But it’s important to remember that volatility means down and up. So sell-offs can often present the opportunity to invest at attractive levels in anticipation of the next upswing.

So stocks can still move higher? We believe stocks can move higher in 2015. It may be a bumpier ride than we’ve enjoyed over the past few years, but the overall backdrop is supportive of stocks. We have a strengthening U.S. economy, low inflation and still-low interest rates, all of which suggest to us that U.S. and global equities can advance. The fundamentals have not changed. Stocks still offer better value than either bonds or cash.

Where should investors focus their attention? Volatility-induced corrections may be more severe and enduring in some areas than others, so selectivity is key. In the U.S. for example, we are cautious on defensive sectors, such as utilities, which have performed well recently but historically have been vulnerable to losses as rates rise. We see greater value in sectors positioned to benefit from economic growth, such as technology and even energy, which had cheapened after a difficult few months. We also see compelling opportunity overseas, particularly in Japan, which is the most attractively valued developed market today. Some emerging markets in Asia also represent long-term opportunity.