Why Has the Stock Market Been So Bumpy?
Tagged in: ,
Tap to Read Full Story

Another week of headlines, another wild week of market movements.

The Dow Jones industrial average—a standard benchmark index used to measure overall market performance—opened Monday, April 24, at 20,723.59. A couple positive news stories and a slew of upbeat company earnings reports pushed the index up by as much as 346 points to a high of 21,070.9 on Wednesday…before closing about 35 points down. Still, for the week, the Dow’s total gain came in at more than 200 points.

What happened?

1. Taxes took center stage.

Just after we kissed tax season goodbye, the Trump administration rolled out its new proposal, featuring lots of cuts—definitely for businesses and the wealthy, and possibly for the rest of us, too.

A few big takeaways: Instead of seven individual tax brackets, there’d be three: 10 percent, 25 percent and 35 percent. Because income ranges for each have yet to be defined, the only Americans sure to save are the wealthiest in the top income bracket of 39.6 percent.

The standard deduction would also double. Itemizers, however, might lose out, as most deductions are on the chopping block. Finally, the corporate tax rate would be slashed from 35 percent to 15 percent—welcome news for owners of businesses big and small.

How did the market react?

Generally, good news for businesses translates to good news for investors. And leading up to Wednesday’s announcement, stocks had been heading up. But without many details—especially on tax breaks for companies looking to repatriate profits (meaning converting revenue earned abroad into U.S. dollars and bringing it back to the States, something companies now pay 35 percent in taxes to do)—those gains didn’t hold.

Also worrying some investors is a little (er, huge) thing called the deficit. The Committee for a Responsible Federal Budget estimates that this plan could cost the nation $5.5 trillion over a decade. That’s a big ballpark figure, but many economists agree the revenue loss would be in the trillions.

2. France picked their candidates.

On April 23, the first round of the French presidential election left the country with two top candidates: Marine Le Pen and Emmanuel Macron. Neither won a majority, so the country votes again on May 7.

Le Pen is the populist candidate, who opposes France’s relationship with the European Union and has proposed kicking out illegal immigrants and temporarily banning new legal immigrants before capping the inflow to 10,000 people a year. Macron is a pro-European centrist, who pretty much wants the opposite. He’s also a political rookie, and at 39, would be the nation’s youngest president ever.

What’s that mean for us?

Remember Brexit? What happens across the pond can have a big—though not necessary lasting—impact on U.S. and global markets. The market reacted well to pro-EU Macron’s lead, jumping about 1 percent after this voting round. If Le Pen ekes out a victory, though, the market could go the other direction.

3. The government nearly shut down.

The fast-approaching Friday midnight deadline to negotiate a budget that would keep the government funded contributed to more skepticism in the market this week. If lawmakers were unable to reach an agreement, all non-essential government offices would close up shop until a spending bill could be passed.

I think I’m experiencing deja vu…

Yup. The government shut down in 2013 in an exhibition of strong Republican opposition to President Barack Obama. This time, what to do about health care was one of the points holding up negotiations. Fortunately, the crisis was temporarily averted with a short-term bill that kicks the can back a week.

What does it all mean?

Last week’s events prove the only thing we can count on with the market is unpredictability. But while the market can be bumpy in the short run, the long-term trend has been up. So while daily headlines and seemingly unending political battles can push and pull on stock prices, it’s wise not to get caught up in daily movements.

“When it comes to investing, being too focused on today’s news can lead to poor, emotionally driven choices,” says Certified Financial Planner Jeffrey Levine, chief retirement strategist at Ed Slott and Company.  “Don’t panic, stay focused on the long run and control what you can, like continuously [investing].”

Related