Wednesday, 12 Dec 2018

A $ 1 trillion exchange move on the stock market is no longer what it was

Stock market stories have been full of big numbers lately. Particularly low numbers like the 799 points the Dow dropped Tuesday and the 784 points it lost Thursday before returning to a double-digit loss.

No, I can not tell you where the market is going – would I know? But what I can do is help you put things in perspective. That's important, because you're obsessed with large numerical fluctuations (and endless comments that claim to explain why stocks go up or down at one point) can make you more frightened (or more optimistic) than you should probably.

Let me explain. Or try to explain.

In the last two months alone, the Dow has closed at least 500 points more or less 10 times. The total Wilshire 5000 stock index has moved two trillion dollars, once unimaginable. It's a trillion, with a T. That's how much Wilshire fell on Tuesday.

But you know what, guys? Fluctuations of 500 Dow points or $ 1 trillion worth of market value are no longer what they were. How? Because the stock market is so much higher than it was before.

Here is the deal. On October 19, 1987, the Dow Jones Industrial Average, founded in 1896, had been displaced by 500 points. Dow's 508-point drop that day was a horrifying drop of 22.6 percent.

At market close on Thursday, such a move would represent less than one-tenth of it, just over two percent.

When Wilshire, founded in 1974, made its first one-day move, $ 1 trillion – on September 29, 2008 – its loss of $ 1.2 trillion represented a decline of 8.3% . These days, it would be a drop of about 3.4%. A lot of money, but much less scary in terms of percentage than 10 years ago.

Look. I'm not telling you that things are going well on the stock market, or that moves of 500 Dow points or $ 1 trillion in Wilshire do not involve serious money. It's just like a percentage – that's the way you should look at this stuff – these moves are not as dramatic as they were.

At December 1 closing prices, the Dow Jones index posted a change of 1.94%, according to a 500-point change, according to Howard Silverblatt, former index analyst at S & P-Dow Jones Indices. The Dow has moved at least as much as 2042 times, says Silverblatt. This equates to approximately once every 16 trading days. Not really a rarity.

(A fact for the quants among us: more than 40% of the 500 point changes – 17 out of 39 – in Dow's 122-year history took place this year, and we still have three weeks left.)

According to Wilshire Associates General Manager Bob Waid, Wilshire has had four days of relocation worth $ 4 trillion. However, these movements were all less than four percent, he says. By contrast, the five days before the move of $ 2018 billion before Wilshire ranged from 7.1 to 11.4%.

Of course, a day of 500 points in the Dow attracts a lot of attention. After all, what news media can resist talking about this kind of movement? The answer is: none.

Now, let's take a deep breath.

As I mentioned in a November 9 column on market whiplash, it was not long ago that US stocks skyrocketed. From August 29 to October 3, the top four market indicators – Dow, Wilshire, Standard & Poor's 500 and Nasdaq Composite – all reached their all-time highs. The financial world was optimistic about the continuation of this situation.

But before Halloween, the gains of the stocks of the year had been canceled. Inventories rose well in early November. But they started tanks a month ago.

Things have been particularly whiplashy this week. On Monday, when Donald Trump spoke highly of his meeting with Chinese leader Xi Jinping at the supposed G-20 meeting in Buenos Aires (without providing any significant details), the Dow gained about 300 points.

When Trump Tuesday threatened his "tariff man" threatening China, the Dow dropped 799 points. And he almost dropped (784 points) early in the session on Thursday, despite optimistic tweets sent Wednesday by Trump as part of what I suspect is an attempt to revive markets. (Markets closed Wednesday due to George H.W. Bush's funeral.)

But about 90 percent of Thursday morning's loss – as comments attributed to the drop in oil prices and the arrest of a top Chinese tech company – had disappeared at the time. closing of the market.

Talk about whiplash! You had a strong rally on Monday, a sharp decline on Tuesday and a sharp decline followed by a nearly full recovery on Thursday.

I will not make you think of why the markets were so sneaky, which I talked about a month ago. Or why, in October, the rise in long-term Treasury yields was supposed to be one of the main causes of the market downturn, while recent declines in these rates are also expected to be harmful to the actions. (For more details, ask a market specialist about "yield reversals".)

Bottom line: Given the large and unpredictable fluctuations we see in recent days and which we will likely continue to see, your money (if any) probably should not have much of your money in stocks if you do not. do not have the financial power to stay and a stomach strong enough to wait for the market to drop. And remember that a 500-point Dow move is just a number. And much less significant than before.


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