One would have to be pretty oblivious to the financial markets not to notice abnormally high volatility the past few months after many years of equally abnormal tranquility. Markets were down 11% domestically in December, and the second and third trading days of 2019 were down 660 points and up 740 points, respectively, on the Dow Jones Industrial averages. The market is exhibiting bipolar, manic-depressive, emotional volatility in this contradictory trading. Granted, the down 660 day centered on Apple’s earnings pre-announcement and concerns over trade squabbles, and the up 740 day centered on spectacular employment numbers and dovish comments by the Federal Reserve Chairman.
Make no mistake, however, this level of volatility is not symptomatic of a young bull market. It’s more in line with an aged bull market, a sideways but volatile market, or the onset of a bear market. Time will tell.
Wise investing does not revolve around short-term judgments and actions, however, but long-term, even-tempered, low blood pressure, unemotional investing. And a commitment to investing over multiple market cycles and many, many years.
The current market is far from healthy. It’s yet to be seen if it’s a bear. But if an investor will add to positions when panic and fear reign, and trim positions when investors are giddy, while maintaining core positions through thick and thin, things will inevitably work out well.
The market is clearly oversold at the current time. Thus the big move on good news. But wise investors should be slow to deploy capital until fear rears its ugly head decisively, and willing to trim positions on upside market movements and renewed market calm.