11 Oct 2014 What’s Causing All The Market Volatility?
Yesterday, Sam, Jared and I were out around town and had multiple people ask us about the recent craziness in the stock market. If you’re not caught up with what’s been going on here’s a quick update. On Tuesday the Dow Jones Industrial Average fell 272 points. The next day it rose 274 points only to plummet 300 points on Thursday, marking the Dow’s most erratic 3 days since August 2011. It would appear that our old friend Volatility has come back for a visit. So, what’s causing all the commotion?
As Jeff Macke points out in his blog, from Wall Street’s perspective there are really 3 things that are driving the current volatility in the stock market.
The October effect
Did you know that since 1970 nearly one third of the trading days in October have seen the price of stocks change by more than 1%? It’s true but perhaps best taken with a grain of salt like other stock market anomalies. For example, the Super Bowl Indicator (an AFC win indicates a decline in the stock market while an NFC victory denotes an increase) boasts an 80% accuracy rate.
Global Growth concerns
Europe and Japan are attempting to fight off recession while growth in China is slowing dramatically, all of which could impact the US economy which is only recently beginning to show signs of strength.
Bad news
If you’ve glanced at the front page of any newspaper or caught a segment on CNN, you know that the world is a scary place right now. From the Ebola outbreak to ISIL’s actions in the Middle East, big non-economic news stories such as these often move the markets due to their potential to impact oil prices, travel and the global economy at large.
So what should you do in reaction to the market’s current volatility? The evidence is clear that any attempt to time the market would be foolhardy, but now would be a great time to assess your financial plan and your portfolio. Make sure that you are taking only the appropriate amount of risk required to accomplish the things that are most important to you. Not only will this ensure that you are heading in the right direction, but it may just help you sleep better at night during times such as these. Give us a call. We can help.
