Yes, Ups and Downs in the Stock Market Are Normal

If you’re the type of person who checks your investment balance regularly, you may be feeling  confused lately. One day—or even hour—it’s up sharply. The next, it’s down. Then it’s up again. What’s going on?

First, let’s get some context. These recent market swings—with the Dow Jones industrial average or “Dow” (which measures 30 of the largest stocks) moving up or down a few hundred points in a day—may seem unusual. But fluctuations are normal. What’s unusual is the lack of volatility we’ve gotten used to. The VIX, an index that measures market volatility, hit an all-time low last year. Even this year, the VIX is still below its 2015 peak.

So, what’s set off the recent bumpiness after so many months of steady growth?

1. Tariffs

In late March, President Donald Trump signed an executive memorandum to impose tariffs on $60 billion worth of Chinese imports. The Dow shed more than 1,100 points in the next 48 hours before recovering, as China fired back with a list of American products it’d tax in return. Each ensuing development since has led to similar short-term market swings as traders try to digest the news.

On Wednesday, April 4, for example, China announced plans to impose additional tariffs on $50 billion worth of U.S. imports—a list that includes more than 100 goods from soybeans to cigarettes, cars and whiskey. The news sent U.S. stocks down  again initially, as traders try to decipher what the actions could mean for different sectors and companies—although the market ended the day up.

Late on Thursday, April 5, Trump said he was considering another $100 billion worth of tariffs on Chinese goods, causing the indexes to slide again. Then Chinese President Xi Jinping softened his stance in a speech Tuesday, assuring that China wants to increase imports and plans to cut tariffs on auto imports, and the market recovered again. (Though they've continued bouncing around since.)
2. Tax Day It’s not unusual for the market to dip in the weeks leading up to tax day, as some people sell stocks in order to pay their tax bill. In fact, a 2015 CNBC analysis found that over the previous decade, the Standard & Poor’s 500-stock index, which is often used as a gauge for the market, was flat or down 70 percent of the time in the two weeks before tax day. The good news: In the 10 trading days following, it was up 90 percent of the time. 3. Interest Rates On March 21, the Federal Reserve (or central bank) announced its first interest-rate hike of 2018. While it wasn’t a surprise—and more are expected to come—rising rates mean debt gets more expensive, which is bad news for businesses, and for people who have credit cards or other variable loans. 4. Political Uncertainty The ongoing Special Counsel investigation led by former FBI director Robert Mueller, and a string of White House firings and hirings—including the addition of controversial figure John Bolton as the new National Security Adviser and firing of Veteran Affairs Secretary David Shulkin —has resulted in a lot of uncertainty about the administration. Trump’s continued threats against Amazon—he’s accused the company, whose CEO also owns The Washington Post, of not paying enough in taxes, among other things—have also affected stocks. One share of Amazon’s stock was trading at about $1,441 on April 13, a more than $150 drop from mid-March. And as Amazon is a major component in the S&P 500, if it falls, so does the index. (Facebook, which is being investigated following news that data company Cambridge Analytica improperly kept info on millions of Facebook users, also saw its stock drop by double digits, which also weighed on the indexes. However, the stock surged the week of April 9, as CEO Mark Zuckerberg began his Senate testimony.) Then there’s the reality that the current bull market has been running for nine years now—the second-longest stretch in history. That doesn’t necessarily mean it will end soon, but the longer it lasts, the more skittish investors worry something could disrupt it and may overreact to new developments. What now? Remember that, even with recent bumpiness, the overall trend is positive. The market is still up sharply from where it was even a year ago. Given the range of potential variables affecting the market, there’s likely more volatility ahead. But even if market drops last, as long as you’re invested in a diverse mix of stocks and bonds that aligns with your long-term goals, the best course of action is generally just to hang on throughout the downturn and give the market a chance to bounce back. Of course, there’s no guarantee that history will repeat itself. But the market has recovered from every downturn in history and continued to climb. This article was updated on April 13.

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