Broker Check

The Week the Market Lost Its Mind

| July 01, 2016
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I remember sitting there last Thursday night annoyed that once again the Minnesota Twins were getting shellacked by the Phillies.  At least the Bay area teams were holding their own, I thought.  The Giants were up on the Pirates, and the A’s were inching out a win against the Angels.  I then thought, I needed to switch over to the news really quick to see how “the vote” was going.  When I left work it was a slam dunk stay vote by the talking heads.  I really hadn’t given it much thought for the rest of the day, until that night watching the game.  I clicked over to the news, and was shocked.  The British were going to vote to leave the European Union.  The so called “Brexit” campaign had pulled off a shocking upset.

As soon as I realized what was happening the news coverage changed from politics to the markets.  The futures markets for Europe, Asia, and North America were all getting crushed.  The press loves this sort of thing, they can manufacture panic, and get everyone amped up with ease.  I don’t think I’ve ever seen a news host use the term bloodbath, as many times as Stuart Varney did that night. Remember we’re talking about stock markets here, not a terrorist attack.

The next day the Dow Jones, S&P, and the NASDAQ all cratered between three and four percent.  Depending on which market you looked at.  The British Pound dropped to its lowest level in more than 30 years against the U.S. dollar.  The Volatility Index spiked to levels not seen since earlier this year.  In all honesty as I sat there after market close last Friday I thought to myself, the selling certainly isn’t done yet, however that day actually went better than I thought.

The selling continued that Monday, albeit, in a more subdued fashion.  That was also after a weekend in which, the press had two full days to trot every doomsayer, and apocalypse now market pundit on TV.  The Dow during that two day period lost approximately nine hundred points.  The S&P 500 got knocked for about one hundred.  The curious thing about that whole market recap is this, if you went to sleep last Thursday and woke up today.  You’d think nothing particularly exciting happened in the stock market.  That’s right, everything rallied the rest of the week, and basically ended up right back where it started.

The strength of the stock market rallying off the lows of Monday, even surprised me.  I figured the market was blowing the Brexit vote out of proportion.  But, to have rallied right back to pre-Brexit levels was still, none the less fairly impressive.  The Brexit vote was a big deal, and may have bigger consequences down the road for Great Britain, and Europe as a whole.  What those consequences will be, are anyone’s guess.  You’ll have to ask someone smarter than me, I suppose.

The most important lesson here is to keep your head on straight, and your investing game plan on track.  The world is funny place and strange things happen.  The twenty four hour news coverage, and the in general negative theme of all things financial reporting can easily derail that game plan.  Every day I hear the world is coming to an end, and yet the sun rises just the same.  Tune out the day to day noise, and remember the sun will continue to rise every morning.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. You cannot invest directly in an index. Past performance is no indication or guarantee of future performance. 

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