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An unwanted but necessary guest

Specialist John O’Hara works on the floor of the New York Stock Exchange on Oct. 11, a day when stocks slumped for a second day as markets endured a volatile stretch.
Specialist John O’Hara works on the floor of the New York Stock Exchange on Oct. 11, a day when stocks slumped for a second day as markets endured a volatile stretch. AP

Who invited volatility for the holidays?

The market has whipsawed investors. The sell-off since October hasn’t spared previously safe harbors. Apple, one of the most widely owned stock, is down 17 percent. Facebook shares have fallen 10 percent. Amazon has dropped 20 percent.

Since springtime, the stock market had been pretty tranquil for long-term investors. Sure, there have been worries and worrisome words. The tough talk and trade war between the U.S. and China, political tensions across the country, and a Federal Reserve raising interest rates have been present for months. And for months investors worried about them, but the markets marched higher as business and economic data was strong. (By the way, all these issues remain in the market today.)

Now it’s a stronger U.S. dollar, or the plunge in oil prices, or a slowdown in the German economy, or Apple ending its disclosure of quarterly iPhone sales data to blame for the stock market sell-off.

The bad news has drowned out the strong economic and business fundamentals that dominated investor emotions. Job growth continues, inflation is low, and most S&P 500 stock index companies have reported better than expected financial results. They are on track to report the strongest profit growth in eight years.

Nerves are frayed. Months of investment gains are lost. Investment strategies are being questioned.

But volatility is part of the mechanism that makes the market work. Volatility merely is investor emotion playing out in stock prices. Stock market investors are wrestling with crosscurrents of emotion and data. Neither is wrong, making the volatility that much more difficult to stomach.

In the week ahead, if one of your Thanksgiving guests is more ornery than usual, blame volatility.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.

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