Enough with the stock market already!
If you’re trying to make sense of the market, good luck to you. I know that stock market stories are one of the staples of business news — and these days, of general news as well — and every market effect is supposed to have a rational, understandable cause.
But that’s not how the world actually works. Automated, computer-driven trades account for the majority of stock trading, so markets tend to feed on themselves more than they did when human beings accounted for most of the trading. So upward and downward moves tend to be steeper and more sudden than they used to be as computerized trading programs chase each other around.
After the fact, of course, all sorts of rational-sounding reasons emerge for whatever the market has done.
If like most of us who own stocks, you’re an amateur investor, not a pro, you’d best pay no attention to daily market moves. You shouldn’t buy or sell precipitously, based on what you’re hearing or reading about the market move of the moment.
And you should pay no attention — and I mean none — to whether stocks are in “correction” territory. “Correction,” is a meaningless Wall Street euphemism for a double-digit decline in stock prices from their highs. .
The first three days of last week are a perfect example of why you shouldn’t run to buy or sell when the market is making steep up-or-down moves. Or these days, some of each.
Last Monday, thanks to fear that President Trump was unleashing a trade war, stocks plunged. Even though they came back quite a bit in the afternoon, it was a really bad day. Both the Dow Jones industrials and the Standard & Poor’s 500 index ended the day in “correction” territory, down more than 10 percent from their Jan. 26 highs. The Wilshire 5000 index, which includes all U.S. stocks and measures values in dollars rather than in points the way the Dow and S&P do, was down 9.97 percent from its Jan. 26 peak. To all intents and purposes, it was in “correction” territory, too.
Pessimism reigned. You could read and hear endless commentary about market dangers, if not a looming market collapse. So, what happened? Stocks went up sharply Tuesday, and the Dow, S&P, and Wilshire all exited “correction” territory.
Then came Wednesday, with the Dow more than 500 points — more than 2 percent — right near the market opening. Corrections R Us time. Then things turned around — apparently initially because some actual people thought a bounce-back was due and put money into the market, and then because various Trump administration representatives were dispatched to say publicly that a trade war wasn’t imminent, Trump’s utterances and tweets and whatever notwithstanding.
By the end of the day, the Dow, S&P, and Wilshire had all more than recovered their big Monday losses and were slightly higher than they were at last week’s close.
And the market move that reversed the “correction” wasn’t called a “mistake,” which I always thought was the opposite of a correction. It was called a “rally.” Give me a break.
What significance was there to market indicators — I don’t call them “indexes” because the Dow is an average of stock prices of its 30 components, not a market-value index like the S&P and Wilshire — moving into and out of Correctionland? As best I can tell, none.
I don’t know where the markets go from here — no one knows. But I do know that I’m not going to run out and dump stocks during down days, or get hot to trot and buy when stocks are soaring.
Reacting to daily moves has always been utter folly for nonprofessional investors, which I assume most of you are. Today, trying to trend-surf is even more foolish than usual.
With market moves getting more extreme and unpredictable, this is a good time to stay calm. And to make sure that if you’ve got serious money (by your standards) invested in stocks, you have both the financial and emotional staying power to withstand gyrations.
Whatever else you do, don’t react to the market news of the day, whatever it may be. And that, as they say, is the bottom line.