By Jeannette Di Louie
The Dow has done some crazy things in the first 11 days of November.
After finishing a strong October at 11,995, it took a sharp 300-point drop on November 1. But by the end of the week, it was back around where it started. The next week, it was up again, only to fall another 400 points on Wednesday, November 9.
Here we are again, up on Friday, but how long will that last?
There used to be a time when that kind of drop was unexpected, yet these days, single day, triple-digit moves seem to be something of the norm. Whenever the market shoots up, you can bet your bottom dollar that, given a few days, it will slide right back down again.
To call the Dow – and just about every other U.S. and global index – volatile is like calling Black Friday just another shopping day. The constant ups and downs of each trading week are nothing short of disorienting… not to mention exhausting.
Not A Healthy Market
Technically, we’re up in 2011. The Dow started out at 11,691 and, as of November 7, was up over 12,050. But that’s still significantly below the year’s overall high of 12,807, which it hit on May 2.
And in between then and now, we also saw such lowly figures as 10,809 on August 8, 10,719 on August 10, and a miserable low of 10,655 just last month.
Clearly, this isn’t a healthy market.
With markets still fragile from the financial crisis of 2008 that never really got resolved in the first place, this kind of back and forth is enough to make many investors run for the hills, their 401(k)s, personal savings, hopes and dreams all safely tucked under their arm… and out of stocks.
It’s important to note that, while this may seem like a fail-proof method for dealing with the volatility, it really isn’t. The Oxford Club, for instance, has four portfolios filled with profitable positions to prove that it still pays to put your money into the market… with the right guidance, of course.
That’s a really good thing, considering how the market isn’t likely to right itself any time soon. There’s simply too much going on in the United States and around the world, and much of it is negative.
No End in Sight
The continuing turmoil of the Eurozone’s PIIGS (Portugal, Italy, Ireland, Greece and Spain) is currently the most prominent factor in market volatility. In an effort to prolong the inevitable, European leaders keep throwing more money at the problematic countries with their problematic policies, politicians and constituents.
Since everyone involved seems dead-set against dirtying their hands right now, don’t expect the economic union’s financial woes to get any better soon. And even if they do suddenly start handling the situation appropriately, the short- and mid-term results will be painful on global markets.
The United States isn’t in much better shape, and some would argue that it’s doing even worse (though that’s debatable). Just a few days ago, Fannie Mae asked the federal government for $7.8 billion in aid to cover its gigantic second-quarter losses.
This doesn’t bode well for businesses or consumers, who will have to pick up the bailout bills in the end, quite possibly through higher taxes, which leads to less money for new hires and the kinds of purchases that fuel national growth.
It also doesn’t say much for the housing market, a major driving force in the U.S. economy.
So far, U.S. politicians seem just about as skilled as their European counterparts (i.e. not at all). So these problems are likely to drag out to… and therefore so will volatility
It would be great if somebody could step in and miraculously soothe the markets. But it took major markets a long time to get into this mess, so logic dictates it’s going to take a while to get out of it all.
Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.