Market volatility has been severe the past few months.
As we noted last week:
After watching the Dow Jones Industrials explode from 24,809 to a high of 26,616 in January, the bottom started to fall out on February 2, when the Dow fell 665 points. The Dow plunged 1,175 points on February 5 and 1,032 points on February 8. On March 1, the Dow dropped another 420 points. Then, on March 19, the Dow fell an additional 400 points, wiping out nearly all of the gains picked up for 2018 in January.
Last week, President Trump announced tariffs on about $60 billion worth of Chinese imports. Of course, China wasted no time threatening retaliation, with China’s Ministry of Commerce warning in a statement Thursday, that China “will certainly take all necessary measures to resolutely defend its legitimate rights and interests.”
Trade war fears rattled the markets, and the Dow sank another 1,124 points in two days. On Thursday, March 22, the Dow plummeted 724 points. It sank another 400 points on Friday, March 23.
"A global trade war, whether it's real or perceived, is what's weighing on the market," explained Ian Winer, head of equities at Wedbush Securities, as quoted by CNN. "There's this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people."
Friction between the two nations is a big deal because both are huge players in the world economy. China is a key buyer of U.S. crops, especially soybeans, and the U.S. is a major buyer of Chinese goods. Any slowdown in either economy could put a damper on what has been a bright economic outlook.
Granted, computerized trading made matters worse, as stop losses caused the markets to plunge even further.
However, as we also noted last week, the markets are resilient.
Even in times of excessive anxiety, there is opportunity. As Warren Buffett will tell you, “Be fearful when others are greedy and greedy when others are fearful.”
Unfortunately, many investors are too scared to think like that. They fail to see the forest for the trees. They sell perfectly good stocks, and they miss the recovery rallies that often follow.
After falling 1,124 points on Thursday and Friday, the Dow closed 669 points higher yesterday, as trade war fears cooled. In fact, yesterday, The Wall Street Journal announced on page one that “China, U.S. Aim to Ease Trade Rift” as the two countries have quietly started negotiations to “improve U.S. access to Chinese markets”.
In short, don’t allow yourself to get caught up in the panic.
Instead, look for opportunities in the rubble, as we often do in The Cheap Investor. Our April issue was just released, and we have a couple of great investment opportunities for our subscribers.