Remember your childhood days and your Yo-Yo? If you do, then you can probably relate to what has been happening since last Friday in the U.S. markets and today has been “Yo-Yo purgatory” for many investors.
The U.S. stock market is making some investors very nervous over the past several days. On Monday, the Dow dropped 1,175.21 points, an all-time biggest point drop in its entire history (although not the biggest percentage drop) having briefly declined more than 1,500 points during the session. Other major indexes closed sharply lower too. The sell-off kicked into action last Friday, after the latest non-farm payrolls report saw interest rates in the U.S. jump.
Today the Drama Continues…
After a swing that saw the market open this morning with another 300 point decline, it has since rebounded (as of this moment) upwards of 500 points! This may be a long day for some, time will tell.
The recent pullback comes after a rip-roaring start to the year for stocks. And on the heels a very good 2017 result. In fact, the markets have been on a recovery roll that has been heading into the stratosphere over the past 9 years without a major correction in pricing. The Dow and S&P 500 notched all-time highs in January and the Index was nearing a new record 27,000 just prior to the latest market news and decline.
Widespread and excessive optimism left stocks vulnerable to increased volatility as bond yields have moved off their lows. While there is some early evidence that selling pressures are becoming exhausted, and stocks could soon see relief, the broad market is seeing meaningful deterioration right now.
Why Is There Turmoil Now?
There was no particular single piece of news that pushed major U.S. indexes deep into the red on Monday, as often can occur in a world of instantaneous news. The changing of the guard at the top of the Fed Board (Janet Yellen’s last day was last Friday) is one possible influence. Wage growth and possible inflationary increases may now mean interest rates may come quicker than expected because of that. Business doesn’t like interest rates going up.
The recent moves in the bond market seem to have added volatility and concern to the market. The benchmark 10-year yield traded around 2.74 percent on Tuesday; it began the year trading near 2.4 percent.
The Cboe Volatility index — widely considered the best fear gauge on Wall Street — surged 31.9 percent to 49.21. It closed at 37.32 on Monday. The surge in volatility also triggered massive selling in other volatility instruments.
Stay the Course
The why of this market swing isn’t totally clear at the moment. It might be an overreaction to an increase in our national debt and the effect on tax collection because of it. Business leaders were on board just a few days ago to the passage of the tax cut law.
Most experts in the know will tell you this: right this moment there isn’t anything to do about what’s happening except to say that sitting tight and waiting to see just what the past few days really means and what the depth and breadth might be of its behavior. Stock market corrections after a long healthy run are expected. It’s only a few rare occurrences like 2008 and back in 1987 when the markets slipped into a serious recession. If you are an investor for the long haul, you will probably see things like this over and over again.