Stocks Take Wild Swings

Published on: 06 Apr, 2018

The stock market nowadays is like a wild thriller movie. Markets are now so much volatile that it is hard to predict what will happen in the next hour. The swings occur as investors grapple with an uncomfortable blend of hard news, speculation, and downright fear.

This does not mean that everyday ends in tears. To give an example, March 4 was an excellent day for everyone concerned. The day in the beginning was thought to be a terrible one. The DJIA or Dow Jones Industrial Average first went to make a loss of 500 points and then swung up to end up in the green at an upside of 230 points. There were days when the opposite has happened, with the markets first going up and then plunging into the red. Early rallies turned into routs.

The swing back from 2017s procession of effortless and gradual gains can be described as dizzying. Traders put the blame on the Trump administration's militancy on initiating a possible trade war. It did not help that the Federal Reserve itself has started to increase its rates. However, traders are also aware of the market volatility from February as the markets huffed back into normal, and then passed it, after a tepid 2017.

In 2017, the Standard and Poor 500 had a total of eight days when it culminated with a loss or gain of about one percent. This is a standard marker for substantial stocks movement. The S&P 500 had 26 such incidents already in 2018. If this continues, this index will end 2018 with 100 similar days. When one looks over the past 50 years, this index had only half such number of days with this kind of big moves.

Even more wilder was the intra-day movements. The S&P 500 on April 4 was down by 1.6 percent only a few minutes post trading. Investors worried about the reciprocal tariffs announced bt both the United States and China. The index went to the black by the middle of the day. It culminated with a gain of 1.2 percent. Such swings from the highs to the lows are now commonplace after volatility came back into the market. It is also now much wider than the historic norms.

This choppiness have been seen to be much more during the last trading hours of the day when the market is led by what is colloquially known as “smart money”. The morning hours see the participation of ordinary investors who buy and sell as per their gut instincts.

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Danny Abramov

Email: danny@financialinsiders.com

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