Adding to the volatility — and uncertainty — is the fact that on nine of the last 11 trading days, the Dow opened more than 400 points lower or higher than the previous day’s close. On those 11 days, the Dow has fallen or risen more than 1,000 points an amazing seven times.
On an eighth day, the Dow fell almost 800 points, even though the Federal Reserve announced an emergency half-point drop in interest rates, something that in normal times would have sent stocks soaring.
All these ups and downs and twists and turns and huge scary falls make a roller-coaster look tame. And don’t be surprised if, sometime in the next few days, stocks rise sharply, as they have occasionally done during the three-week-long market plunge.
If you find yourself confused by all of this, you’re not alone. I’ve been watching financial markets for 40 years or so, and the one thing that I’ve learned — and that I want to pass on to those of you who, like me, aren’t professional investors — is that the stock market has an unpredictable life of its own.
In the long run, the market is rational. In the short run, however, trying to find a rational reason for what the market is doing can lead you down a rabbit hole. So don’t think that you’ve failed because you can’t figure out what’s going on and what’s coming next. No one can.
A month ago, stocks were setting new highs — the Dow peaked on Feb. 12, with the Standard & Poor’s 500, the Nasdaq and the Wilshire 5000 total stock market index all peaking on Feb. 19. The question then was, “How high will stocks go?” Now, watching what feels to me like panic selling, the question is, “How low will they go?”
I don’t know the answer to that — and no one else does, either.
What I do know is that all of us who are fortunate enough to have significant stockholdings need to take a deep breath, try to figure out what we want to do, and ignore the noise.
The first thing to ignore is that the Dow and the Standard & Poor’s 500 are now in a “bear market” (defined as a decline of at least 20 percent from their closing highs) rather than in a “correction” (a Wall Street euphemism for “double-digit price drop” of at least 10 percent).
Does this matter? Not really.
What does matter is that U.S. stocks have dropped about $10 trillion — that’s trillion, with a t — since the Dow’s peak last month, according to Wilshire Associates, and about $10.1 trillion since the Wilshire, S&P and Nasdaq peaks a week later.
What should you do with your money? It depends on your age, your circumstances, your financial and emotional staying power, and your tolerance for risk. In other words, you’ve got to figure this out for yourself.
The one thing I feel comfortable in telling you is that despite the talk about U.S. Treasury bonds being a “haven,” these days they don’t offer anything resembling safety to amateur investors who aren’t wired into the bond market.
Here’s the deal. The market prices of fixed-income securities, like Treasury bonds or notes, rise or fall when the yield on them changes. If you had bought a 10-year Treasury note on Mar. 9 at the day’s closing yield of 0.54 percent, your investment would have lost 2.2 percent of its value — more than 4 years’ worth of interest — when the yield rose to 0.78 percent on Mar. 10.
If you bought a 30-year Treasury bond on Mar. 9, you lost 7.2 percent of your money — 7 years of interest — when the yield rose to 1.28 percent on Mar. 10 from 0.99 percent.
If you want safety, I suggest a high-quality, low-cost government money market mutual fund. Your yield isn’t going to be very high, but at least you don’t have to worry about taking losses.
You’ll notice that I haven’t talked about what the coronavirus and covid-19, the disease the virus causes, are going to do to the U.S. economy. That’s because I don’t know, and don’t want to hazard a guess. I’m also leaving politics out of this.
I think the big problem we’re facing now is fear, which is going to grow as the number of covid-19 victims rises, which seems inevitable.
Sooner or later, the market will calm down, because it always does. But for now, prepare for more whiplash. And keep your seat belt fastened.