Relax – this is the typical nature of the markets. It’s true that markets have shown fluctuation. Unquestionably, the instability in Asia, particularly the considerable single-day drop in Japan’s Nikkei index, matching the magnitude of the 1987 Black Monday, was remarkable. Also, Wall Street’s Vix, the volatility measurement, achieved its third topmost score in its chronicles, surpassed only by the figures during the 2020 spread of Covid and the global economic crisis.
Often, during these tumultuous times, market commentary becomes overly enthusiastic, leading to chatter about trillions of dollars being “erased”. On CNBC, Nassim Taleb, author of Black Swan, was questioned whether the current situation could be classified as a black swan incident. Taleb, looking rather surprised, rejected the notion stating a 3 per cent drop of the S&P 500 in a day is the norm; in fact, it would be peculiar if a year passed without such fluctuations.
Ben Carlson of Ritholtz Wealth Management shares this view, mentioning “what happened prior to this” – the unusual lack of volatility with confident stock progression – “was abnormal”. Even during prosperous times, some market correction is expected. The recent market downswing is actually quite modest compared to most years.
Discussing the trillions that have been “erased”, a drop of indices to their May position is far from a meltdown.
However, it would be just as erroneous to assume that the resultant recovery signifies a return to normality immediately. Market downturns usually occur in a cyclic manner, so the readjustment of recession risks will likely unfold gradually.
As the saying goes, “there’s no such thing as a free lunch”. In this context, Ryan Detrick from the Carson Group interprets market volatility as the price we pay for investing.