'Cathartic puke' 📉😳📈😬📉🤢📈🤮
A hard truth about the stock market
In today’s wired world, it’s hard to miss or ignore news about market volatility.
And when you get this kind of volatility, you get some very colorful language from Wall Street.
“The high-volume ‘cathartic puke’ we were waiting for occurred on Monday,“ Christopher Harvey, senior equity analyst at Wells Fargo, wrote on Tuesday.
There haven’t been any obvious explanations for what’s been driving the moves. Most theories explaining the morning sell-offs (-4% on Monday morning and -2.6% on Tuesday morning) were debunked by the afternoon, as stock prices fully recovered.
Sure, we could rattle off a list of all of the lingering risks out there. But would that actually be helpful at the moment, or would it just fan the flames of fear? Keep in mind there’s always a long list of things to worry about, even during the extended periods when stock prices trend higher.
That said, some recent posts from TKer are relevant as you try to make sense of it all:
Gut-wrenching stock market sell-offs are normal (1/4/22): In an average year, the S&P 500 sees three sell-offs of 5% or greater. The average annual max drawdown (i.e., the biggest intra-year sell-off) is 14%. That means the S&P’s 10% decline from its January 3 closing closing high of 4,796.56 to Tuesday’s closing price of 4,356.45 is very much within the realm of average.
Most stock market investors have a valuable edge (1/20/22): Attempts to time the market (i.e., dumping stocks before you think prices will fall) comes with a very high risk of missing out on “sharp bursts,” which can be incredibly costly. For most investors, the best move is to stay put, in which case time is a valuable edge. (Also: 2 telling charts about the stock market's volatile path)
Coping with two conflicting realities (1/23/22): In the long-run, things almost always work out for the better; but in the short run, anything and everything can go very badly. If you’re not able to stomach short-term volatility, or if your portfolio can’t handle short-term unrealized losses, then investing in the stock market might not be for you. These short-term challenges are the price investors pay for long-term riches.
The pros are split, but they’re mostly making recommendations that are in line with their existing 2022 forecasts. The more bullish firms, like those at Goldman Sachs and Wells Fargo, are recommending clients buy dips in price. Meanwhile, the more bearish firms, like Morgan Stanley, warn stocks have further to fall.
The hard truth
Unfortunately, there really is no telling what will happen in the coming days, weeks, and months.
For more on stocks: 10 truths about the stock market