Trying to make sense of the stock market’s lunatic lurches on a day-to-day or minute-to-minute basis is like trying to figure out what’s going on in the world by reading the entrails of sacrificed animals: It can’t be done.
However, the ancient haruspices — the folks trained in entrail-reading — had it easy, compared to the people in today’s media universe who are expected to fill column inches or TV air time or the Internet by explaining why stocks are acting the way they’re acting, and what you should do about it.
So despite the fact that I’m a columnist, that I’ve been writing about business for close to 50 years and that people have been known to conflate “experienced” with “wise,” I’m not going to pretend to offer up some sort of divine market truth.
Instead, I’ll offer up something resembling common sense. And I’ll add in a bit of advice that’s informed by how I, as someone in his 70s who’s heavily invested in stocks, look at things.
First, let’s try to keep numbers in context. Monday was the first four-digit Dow drop in history, and was also the first time that the Wilshire 5000 index of all U.S. stocks dropped more than $1 trillion. Both of those were striking numbers. However, they’re relatively small — less than five percent for the Dow, less than four for the Wilshire — relative to stock market values.
So the only reason that we saw the 1,175-point Monday drop in the Dow and the $1.25 trillion drop in the Wilshire was that stocks were at high levels. I’m not telling you not to worry — I’m telling you not to let the Dow and Wilshire numbers freak you out.
Second, ignore words like “correction,” which has become a Wall Street buzzword for a drop of 10 percent or more from a market high. That’s a meaningless euphemism — “correction” sounds so much better than “a big drop.” Besides, as I’ve said before (and expect to say again), if a drop is a “correction,” does that make a rise a “mistake?” No — on Wall Street, it’s called a “rally.”
Third, understand how the market works. Most trading these days is done computer-to-computer, as opposed to investors making (supposedly) rational decisions to buy or sell. So for the most part, stocks had been going up because they were going up. Then last week, they began going down sharply because they were going down. And today, as I write this, they’ve swung wildly both up and down.
Monday’s fear was exacerbated by the fact that it was hard or in some cases impossible to access your online accounts at some major market firms. That lack of access, combined with the endless babble on TV and online sites, made it seem to some people that the end of the world was at hand. Just like you should not necessarily buy because the market is going up and you feel good, you shouldn’t necessarily sell because the market is going down and you feel scared.
Fourth, don’t blame President Trump for the market, tempted as many people are to do that.
Just as I didn’t credit Trump for the rising market — something that generated hostile email and online comments — I’m not blaming him for the decline. That’s because presidents aren’t the main drivers of markets. The main drivers in the short term are momentum, the main drivers in the longer term are things like corporate profits and interest rates.
The reason, of course, that it’s tempting to blame Trump for the drop is because he has foolishly taken credit — over and over and over — for stocks going up. Which makes him a great target for anti-Trumpers now.
According to my Post colleague Dana Milbank, who keeps track of such things, Trump, who in the fall of 2016 called the stock market a bubble, has boasted about the market’s rise about 100 times.
However, when Trump spoke Monday as the market was plunging, he didn’t say a word about stocks. I suspect that one of these days —if not today — he’ll begin to follow the party line we’ve already started to hear from at least one Trump toady, and blame the decline on President Obama.
Fifth and last, what’s been happening lately is an example of how, if you’re going to put serious money into stocks, you need to have both staying power and a strong stomach. I have both — at least, I think I do — and they have served me well for decades.
No, I don’t know where stocks will go from here. If I knew things like that, I would have long since given up journalism and become someone whose major business consists of managing his own investment accounts. That hasn’t happened, yet. And I think the odds of that happening are about the same as my being able to divine the future by examining roadkill entrails.