Thunder, But No Lightning?

I don’t take lightly the 3+% move in the markets over the past two days.  And, be assured, down days in the market leave a much more lasting impression in my mind than big up days (which is why I was able to cite below the date and statistics of events 27+ years ago without even having to Google the information).

I find Bloomberg a much more informative investment news channel than CNBC and watch Bloomberg at home and listen to Bloomberg radio in the car.  However, at the office I mostly keep CNBC on (muted) so that I know what clients and others are seeing throughout the day.  Tuesday (January 14, 2015), at 2:30 pm, the Dow Jones Industrial Average was down approximately 222 points, or 1.4 %.  In it’s never ending quest for sensational headlines the 2:30 pm CNBC “Breaking News” story in big capital letters was “DOW IS OFF 600 POINTS FROM MONDAY’S HIGH.”   Ten minutes later (the time it took me to write this) in much smaller letters was “stocks pare losses” and then in smaller print a few minutes later was “stocks are 150 points up from lows of the day”.  These are big numbers and as my colleague Bob Bilkie wrote yesterday, we think there are several reasons for the current volatility and why it may persist.

For some longer term perspective, back in “the day,” specifically “the day” of October 19th 1987, the Dow Jones Industrial average dropped 508 points, which represented a one day decline of 22%. As opposed to the barrage of information we receive each minute of the day, at that time the public was not exposed to the market moves on a minute to minute basis and also was not accustomed to 24/7 commentary (I worked at the bank in 1987 and we were on a 10 or 20 minute delay for stock quotes — which at the time was pretty impressive!).

People reading this know intellectually that 600 points on the DOW today is different than 508 points on the DOW 27+ years ago.  However, given the heightened stimulation CNBC and others provide in their reporting, it often feels like we are in crisis mode.  Emotionally we need to keep in mind that 600 points on a Dow trading between 17,000 and 18,000 represents a move of around 3%+ versus a 22%+ move when the Dow traded between 1700 & 2200.

All comments and questions are welcome.

Denise Farkas, CFA®