Market Volatility 2018
The Dow Jones Industrial Average has recovered some of its recent losses, but investors cannot hide from rising market volatility in 2018. There’s a stark contrast between the optimistic (too optimistic) market expectations that erupted when Congress passed President Donald Trump’s tax reform last December, and the clear 12% market correction in the first week of February.
February 2018 has sent investors clear market volatility indicators. They should not have come as a surprise to anyone.
Warren Buffett did not become a billionaire several dozen times over by throwing caution and dollars to the wind. It turns out, Buffett has been warning that stocks on Wall Street are too expensive. Buffett and a few others at the top of the financial pyramid weren’t shocked by the recent market volatility and its substantial losses, which many seemed to think would never come.
The best that investors can do to confront this forgotten side effect of an overly ebullient market is to ask the following two questions.
Have we reached the final station in the bullish financial season that started in March 2009? Or will the recent correction prove to be a much-needed break from ever-higher S&P 500 records, affording newcomers an opportunity to join the market?
It’s never easy to discern the kind of correction that causes a double-digit percentage dip in the Dow. No matter how experienced or inexperienced, often, humans are optimists.
In the case of the financial markets, that’s even more the case. There’s the hope that drives us to recover our money, especially after the first big sign of trouble. Yet, the current financial volatility is no freak incident or temporary phenomenon. Economics 101 basics tell us there’s more trouble ahead for stocks.
U.S. Market Sell-Off
The trouble that has triggered the U.S. market sell-off was rather unusual. It was good news: the increase in U.S. wages and the declining unemployment rate. It’s absurd; both indicators are signs that the economy is functioning. If investors reacted with fear in the face of a favorable jobs report, it suggests that somehow, there is something wrong.
The report has exposed the weakness in the markets that everyone knew existed yet was afraid to discuss. It was as if the bullish jobs report lifted the carpet, exposing all the dust that had been swept under it.
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