Volatility has been severe in 2018.
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.
Of course, many of us knew very well we were overdue for a correction.
But clearly, the investing climate has changed from the rising markets we have experienced over the past several years.
One of the many reasons for the excessive selloff is computerized trading, which uses complex algorithms to trigger automatic sells. And as we’re painfully aware, once the selling started, and markets tumbled, computerized stop losses made things even worse.
Intensifying the panic has been fears of a trade war, which caused Boeing (BA), Caterpillar (CAT) and United Technologies (UTX) to spiral lower on concerns that business could be interrupted
This past week, we watch Facebook (FB) plunge more than 7%, helping to force the Dow down 400 points on March 19.
Apparently, the stock fell after political analytics firm, Cambridge Analytica said it was able to collect data from 50 million people’s profiles without any consent.
"We think this episode is another indication of systemic problems at Facebook…We see enhanced risks for the company, but no near-term tangible impact on its business," explained Brian Wieser, an analyst at Pivotal Research, as quoted by CNBC. "Made clear in the reporting is that Facebook did not make sufficient efforts to recover users' data, which then informed ad targeting in the 2016 US election. It also did not disclose the leak to users or investors."
Volatility has gotten so severe that even the CBOE Volatility Index (VIX) spiked to 20 from 16.
While there have been several reasons for elevated volatility, we have to remember, the markets are resilient. And despite that volatility, The Cheap Investor believes the growing economy will insure a rewarding year for investors.
In fact, a correction of this size typically creates an opportunity for shrewd investors to pick up quality stocks at lower prices.