Why are Markets so Volatile?
An excellent article today in the Wall Street Journal ‘Why Are Markets So Volatile? It’s Not Just the Coronavirus’ commented how the stock market is now dominated by computer-driven investors that rely on signals such as volatility and momentum
Since the mid-February market peak, the Dow Industrials have closed more than 1,000 points lower on six trading days and rebounded at least 1,000 points four times, not seen since 1929. Adding to those moves, and potentially hastening them, are technical factors that have little to do with how investors feel about the outlook for companies, earnings and the economy.
In a dramatic shift since the financial crisis, the market today is dominated by computer-driven investors whose machines react to a series of technical and other factors, as well as by more-traditional investors who rely on reams of fast-flowing data. On many days, forces such as the market’s volatility and momentum, derivatives activity and the market’s liquidity—how easy or difficult it is to get in and out of trades—can help drive trading.
As long -term investors, we invest in companies based on their fundamental attractions and have little interest in apparent short-term trading opportunities, which only serve to enrich the brokers.
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