Investing

Why Are Stock Prices Still Bouncing Around So Much?

Nancy Mann Jackson

After a bumpy October, stock prices seemed to settle down and start climbing again in early November. But after a strong start, the market’s been stumbling again.

On November 20, the Dow Jones industrial average or Dow (an index that tracks 30 big stocks) fell more than 2 percent, and the S&P 500-stock index dropped 1.5 percent. The Nasdaq, which tracks big tech stocks, also fell about 2.5 percent before rebounding.

By Monday, November 26, it seemed as if stocks were back to their usual upward trend: The Dow and S&P 500 reach rose about 1.5 percent, and the Nasdaq gained more than 2 percent. But on the morning of November 27, the Dow shed about 200 points before recovering.

While sharp market moves like this may rattle our nerves, the truth is, a stock market tumble shouldn’t actually be a surprise—even in the midst of the longest bull (or up) market in history that we’re in now. Stock prices, by nature, go up and down every day, though the market’s long-term trajectory has historically been up.

So what’s weighing on stocks this month? Here are a couple of the biggest factors:

Where Apple goes, so goes the market.

After leading the march up for months, Apple’s stock price has been slipping since it was reported earlier this month that production orders for the new iPhones were down. A Goldman Sachs analyst downgraded its financial outlook last week, citing weakness in demand for Apple products in China and other emerging markets.

Early on November 27, Apple's stock price fell about 1.8 percent (bringing Apple's total November losses to more than 20 percent) following President Donald Trump's threats of levying new, 10-percent tariffs on iPhones and laptops imported from China.

Shares in other “FAANG” companies—Facebook, Amazon, Apple, Netflix and Google—have slid this month as well. Facebook has been hit the hardest, after a wave of negative publicity around executives’ handling of privacy issues and the spread of misinformation on its social network, but Amazon stock prices have also fallen since it offered worse-than-expected outlook for fourth quarter. And shares of Netflix and Alphabet (Google’s parent) have been dragged down with the rest.

And when the tech sector has a tough day, the broader market typically does, too. That’s in part because tech stocks have led market growth for a while, so any indication of a slowdown can worry investors about their ability to keep growing.

Plus, as large components of major market indexes—the FAANG stocks still account for more than 10 percent of the S&P 500’s total market cap—any movement stocks like Apple and Amazon make can disproportionally affect the market at large. (The FAANG stocks are included in the S&P 500 fund in Acorns portfolios, though it also includes hundreds of other stocks.)

Interest rates are still rising.

Over the last few years, the Federal Reserve (our country’s central bank) has slowly been raising the amount it charges banks to borrow money, from near zero to a range of 2 to 2.25 percent. That, in turn, affects the amount banks charge their borrowers.

Rising interest rates don’t directly affect the stock market. But since banks pass those increases on to borrowers, that means it costs businesses more to borrow to expand their operations, which can slow growth and affect their stock price. Our credit card debt also gets more expensive, which can affect how much money we spend. And since Americans now carry more than $1 trillion in credit card debt, that can have a big impact.

Rising interest rates can also strengthen the dollar, as it encourages more foreign investment. While a strong dollar may sound like a good thing—and it does indicate a strong U.S. economy—it can hurt American companies that do business overseas, thus sending stock prices down.

Is there anything I can do about all of this?

Long-term investors can hang tight. Even after the drop, the S&P 500 is still up more than 21 percent in the last two years and nearly 4 percent in the last year. A well-diversified portfolio of stocks and bonds is actually designed to carry us through times like these. When some investments or sectors are down, others should be up.

Remember: Despite short-term zigs and zags, historically, the market has recovered from every drop and continued marching upward.

This post was updated on November 27, 2018.

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