Hello, volatility, welcome back to the market
From: www.seattletimes.com
Lost amid the easy move up of 2017 and the hot start to record highs in January was that the market had gotten, well, boring.
When the Dow Jones industrial average finished its 1,175-point drop on Monday, Peter in Seattle checked the balance in his 401(k) plan.
He had lost roughly $12,000 on the day. He was scared.
Jack in Braintree, Massachusetts — a 20-something who has worked hard to start his savings and investment accounts — looked at his accounts and said “this is the worst day of investing I have had in my life.” His accounts were down about $500.
Ladies and gentlemen, please welcome volatility back to the stock market.
Lost amid the easy move up of 2017 and the hot start to record highs in January was that the market had gotten, well, boring.
Last October, it blew past the longest streak ever for the Standard & Poor’s 500 without a 3 percent drawdown; the previous record of 241 trading days had been set in 1966. The new streak lasted more than a calendar year. The S&P also had its longest streak of consecutive days without a 0.5 percent drop in 20 years.
All of that building put the indexes at record highs, levels which also make point drops less meaningful.
On the way up, we watched the Dow Jones industrial average move from 25,000 to 26,000 in days, but that 1,000-point gain represented just a 4 percent gain. That’s a lot different from the 1,000-point gain that moved the Dow from 9,000 through 10,000 years ago, because that 1K increase represented an increase of more than 10 percent.
That’s why Jack’s worry about the “worst day” was based on misleading headlines and calculations.
Yes, the news organizations were touting the “worst decline in history,” but that was the worst point drop. The 1,175 points were more than double the point decline experienced during Black Monday 1987, the actual “worst day” any living investor has ever experienced.
