Chances are, you’ve noticed stocks have been acting erratically this year. It would have been hard to miss the 1175-point and 572-point single-day drops in the Dow since January. The S&P has also been rocky, with 27 trading days where it closed up or down by 1% or more. For all of last year, there were just eight such volatile days.
Jack Bogle, the 88-year-old founder of Vanguard, had this to say about market volatility in a recent CNBC interview: “I have never seen a market this volatile, to this extent, in my career. Now, that’s only 66 years, so I shouldn’t make too much about it, but you’re right: I’ve seen two 50% declines, I’ve seen a 25% decline in one day, and I’ve never seen anything like this before.”
While we can appreciate Bogle’s sentiment, if I recall correctly, volatility was much worse than it is now during last decade’s financial crisis. Even as recently as 2015, there were 72 trading days when the S&P closed up or down by 1%. Still, this year is clearly giving investors a wild ride.
As unpleasant as it is for me to say, investors should expect more of the same in the near future. Last year’s smooth and comfortable ride was abnormal. While this year’s roller coaster isn’t typical, either, markets are actually behaving closer to the norm.
What’s causing the recent volatility? Trade war threats and unsettling tweets may have some influence, but only in the short term. The markets will absorb bluster, threats, and noise, as they always do. If the tough tariff talk becomes action, however, all bets are off.
Over the long haul, investors respond to matters of broader economic health—mundane things like corporate earnings, inflation, and wage growth—far more than they do to political infighting and distractions. Bogle’s comments speak to this notion, too: “This trading, this volatility, is of interest to speculators…but it should not disturb long-term investors,” he said.
While you should always be mindful of risk, try not to let current conditions rattle you into ill-timed decisions. The chaos won’t last forever. In the meantime, check out this USA Today article for additional perspective about volatility.