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March 05, 2006 at 02:00 PM
I’m writing this a couple of days after panic-selling started in Shanghai and hit the Dow with a tidal wave that sent it sliding 416 points, or 3.3%, when the day was over. The NASDAQ and S&P 500 also took similar lickings, dropping 3.86% and 3.47%, respectively.
It’s been a while since the equity markets took such a steep one-day nosedive. Indeed, one of the main features of the last few years’ improbable buoyancy has been how relatively little volatility the markets have experienced (although for some people it was still too much).
So there seemed to be little panic this time and more of an expectation that the market would immediately turn around and do a pendulum swing the next day way back in the other direction.
Didn’t happen.
At least it didn’t happen with the kind of oomph that many investors were hoping for and that many pundits were expecting. The Dow, for instance, managed only a 52-point rise on the day following The Big Drop. More of a hiccup than a full-bodied pendulum swing.
If it takes a while for the Dow and the other averages to regain the ground they lost, I wonder how consumers will react.
The lack of volatility has had a lulling effect on many investors who once again started to believe that the stock market was an anti-gravity mechanism. So, in the sense that an occasional big sell-off like this acts as a wakeup call to the reality of the market’s ups and downs, that is a good thing.
It’s not such a good thing when you check your 401(k) or IRA balances online and find out that you’ve taken a hit to the tune of a few thousand bucks. And the shorter the timeframe is for your retirement, the less of a good thing this is.
If you’re a small investor or do most of your saving/investing through mutual funds, you want to believe in the market’s unfailing instinct to rise and in the advice that equities are the place to be over the long haul, despite the inevitable dips.
