Stock market volatility continues and is today’s norm. The Dow Jones Industrial Average (DJIA) fell a further 28% to 18,591 on March 23, following its largest one day drop of 1,191 on February 27. Although the March 23 dip was 35% below January’s opening, the DJIA is off a mere 12.3% for the year-to-June 26. Recovery since March astounds me, because it doesn’t have a firm basis.

Stock Market Volatility Continues But DJIA is up Since 2017

Though the Stock Market volatility continues, it has not prevented market buoyancy over the past several years. Since 2017, the DJIA rose 16.8%, even after accounting for large drops in February and March. Meanwhile, the USA plunged into a recession in February. And the country is like a rudderless ship without a captain as COVID-19 cases and deaths climb.

USA Needs Mature Leadership

Inability of Trump to lead the USA out of today’s crises creates chaos and adds to market uncertainty. The Editorial Board of the Wall Street Journal puts it well:

[Trump] wasted his chance to show leadership by turning his daily pandemic pressers into brawls with the bear-baiting press and any politician who didn’t praise him to the skies. Lately he has all but given up even talking about the pandemic when he might offer realism and hope about the road ahead even as the country reopens. His default now is defensive self-congratulation.

Wall Street Journal, June 25 – The Trump Referendum: He still has no second term message beyond his own grievances.

Two emotions, fear and greed, drive the market. Too much fear and stocks fall below proper valuation. While excess greed causes investors to bid up stock prices beyond realism leading to market crashes. On June 29, CNN’s Fear & Greed Index was 48% and is likely to go lower in today’s fear-filled climate.

Where is DJIA Going

What is driving the market higher? Pundits on Wall Street hope for a vaccine soon. More businesses will reopen and workers return to work and ratchet up their spending. But there are danger signals lurking. The USA elections are in four months and Trump keeps searching for distractions to mask his incompetence. He goes against medical advice of physical distancing and wearing masks, and his base follows. Without informed and mature leadership, the USA remains stuck in phase one of COVID-19 unlike other countries, which moved to their second wave.

Stock markets will remain volatile in the short to medium term. Many potential factors beyond Trump’s ineptitude might exacerbate volatility in the coming months:

1. Joe Biden’s sustained rise in the polls. Wall Street will consider this bad for business and the market. But history shows the stock market performs better under democratic than republican presidents even though democrats tend to be less business friendly.
2. Increasing COVID-19 cases and deaths
3. Poor quarterly corporate earnings with little optimism for future quarters
4. Continuing job losses
5. Inaction by Congress on a realistic stimulus package
6. Europe and other countries restricting Americans’ travel to their locations
7. Trade wars with Canada and China

What can you do about your investments? Don’t panic. Take the sleep test: if you stay awake worrying about your investments, get out the market. Remain focused on your goals. And remember, this will pass.

© 2020 Michel A Bell

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