Now that’s a headline! I am somewhat of a headline junkie. I enjoy comparing what was said, to what is really going on. This week the stock market generated some great new ones for my collection.
A New York paper stated, “Crashing stock market wipes out all gains for 2018.” Wow, that sounds terrible, until you put it into perspective given the year was only a month old. How about replacing that with, “Stock market retreats to the Fantastic High Point on which it finished 2017 just one month ago.”
The next headline from a major news network read, “Market Suffers biggest one-day Loss in history.” When talking about people’s money, words like “Suffer” and “Loss” can really get your attention. Of course you had to read into the article to get the details that the headline was referring to the point loss, not the percentage loss. Points are important in the World Series and the Super Bowl, but not always so critical on Wall Street.
When I began investing the Dow Jones average was in the 800’s. Back then an 800 point drop would have been, well, the end of the world. An 37 point drop at the time would be similar to an 1100 point drop today. Price movements in investing are really about percentages, not numbers, and in percentages the drop referred to by the headline this week wasn’t even in the top 30. On black Monday in 1987, the Dow average fell 22.6% in one day. By today’s standards that would be over 5,000 points. Now that would be a headline. So my version of this headline would be, “Market dips 4.6% in long anticipated correction.” Ok, so it’s pretty clear I will never get hired to write headlines.
When the local furniture store has a sale, the crowds wrap around the building an hour before opening. When department stores have sales, people get in fights over products. But when Wall Street has a sale people run away, until prices go back to normal, or higher. It’s kind of an interesting phenomena when you think about it.
The causes of the current correction are varied but include a stock market that has gone up for a long time combined with rising interest rates, a strong job market, and concerns about inflation. Remember, these are not signs of a weak economy but usually the symptoms of a strong one. Market corrections are a very normal and healthy part of the process. They can also provide opportunities if the economy stays strong, much like a good storewide sale. Investors will want to be aware though that volatile markets attract speculators, which can bring more volatility with them.
Volatility that is normal to markets can be made to look much worse given the larger numbers we are working with now. As always, do your homework and keep a cool head. Oh, and let me know if you see any more great headlines to add to my collection.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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