Is This the Most Volatile Market in History?
By Angela Koch, CEO of U.S. Money Reserve
American investor, business magnate, and Vanguard Group founder Jack Bogle stated in a CNBC interview last week, “I have never seen a market this volatile to this extent in my career.” This is quite the proclamation since Bogle’s career has spanned some 66 years. Likewise, Art Cashin — another big board legend and managing director of UBS Financial — stated, “It’s a good deal more volatile than almost anything you’ve seen.” Cashin’s career dates back to 1959.
Both men have witnessed a lot of market mayhem, including Black Monday when the Dow tumbled 508 points to close down over 22 percent in the fall of 1987. And the dot.com crash of 2000–2002 when the NASDAQ plunged 50 percent in nine months. And the more recent financial crisis of 2007–2009 when the S&P 500 lost half its value.
Last year was one of the calmest in market history as the CBOE Volatility Index (VIX) hit all-time lows. As a matter of fact, we went over 400 days without so much as a five-percent reversal. But that has changed dramatically in 2018. February and March of this year were exceptionally explosive. The Dow plunged 1,179 points on February 5 to record the worst point decline in history. In late March, the Dow sank another 1,148 points over two days as volatility skyrocketed.
In a world driven by trends, forecasts, and predictive models, analysts are trying to find historic parallels for the recent market sways. Like seismologists combing through quake data, they’re assessing fault lines, aftershocks, and projections on when “the big one” will hit.
So what can we glean from Wall Street’s recent drubbings? There has been endless talk of trade wars, bond yields, over-valuations, changing monetary policy, exploding debt, and tech companies behaving badly. But perhaps the most compelling insights have come from the conditions surrounding the market rout of 1987 when machines triggered the first avalanche of automated sell orders. Trading by algorithm is familiar to us in 2018, but 30 years ago, automation was it in its infancy, and computers fueled an infectious panic — resulting in a record-setting rout.
The year 1987 was interesting for other reasons as well. In the days leading up to Black Monday, the Dow hit a series of record highs even though economic growth had slowed, the dollar was falling, bond yields were climbing, and the Fed was tightening. There was also a large trade deficit and a massive budget shortfall that arrived on the heels of Ronald Reagan’s historic tax cuts just a year earlier. Experts warned that the markets had risen too high and too fast and that stocks were wildly over-valued. Sound familiar? The punishing crash that occurred on October 19, 1987, marked the end of a five-year bull run.
Perhaps this is why Art Cashin also compared the current market’s fitfulness to the “the volatility we saw in ’87.” Volatility breeds uncertainty, and that spells risk. In 2018, the VIX is up 95 percent since the start of the year. Perhaps this is why Jack Bogle also stated, “I’ve seen two 50-percent declines, I’ve seen a 25-percent decline in one day — and I’ve never seen anything like this before.”
Bogle and Cashin have 125 years of trading experience between them. Ignore them at your own peril — or consider protecting yourself right now with gold.
