I know this is a subject I write/blog/video about often, but I still get questions all the time, so it bears repeating.
The markets haven’t been very volatile and over the the last couple of years, other than some early parts of both years there has been hardly any volatility at all. It’s been pretty calm.
The issue is that even when we have normal volatility people think it’s volatile because the numbers are so big. Now that the Dow is around 25,000, a 250-point move, which would have been a big move 20 years ago isn’t that a big deal. It’s 1%.
Historically, stock market volatility has averaged about 0.7% per day. So, if you look at it that way, then a 150 or 180-point daily move would be what you’d expect. Instead, because we base it on numbers from the past, and sometimes the distant past, 150 points seems like a big deal. It’s not.
It was in 1983, when the Dow hit 1,000 and stayed above 1,000, (hopefully!) for the last time, or 1966, when it went above 1,000 for the first time.
Now, a couple hundred-point move is trivial and shouldn’t be any cause for alarm or euphoria. When you check in to see how the markets are doing, look at the percentage change, not the numerical change.
The numerical change can really fool you into thinking that things are better or worse than they are. Better isn’t usually a bad thing but worse can feel pretty crappy sometimes.
