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macroeconomic volatility and stock market volatility

Article Index

Stock Market Today Reverses Painful Two-Day Plunge

By , Contributing Writer, Money Morning -

A sense of calm appeared to settle over the stock market today - one day after the Dow's worst of the year. The Dow was up nearly 90 points near the close Friday.

Gold prices, pushed below $1,300 an ounce Thursday, its lowest level in some two-and-a-half years, also bounced back Friday.

Equity and commodity markets sold-off Wednesday and Thursday on worries the U.S. Federal Reserve could begin winding down its market supportive stimulus program later this year.

St. Louis Fed President James Bullard, who dissented against the FOMC meeting decision Wednesday, said in a statement Friday the central bank "should have more strongly signaled its willingness to defend its inflation target" and shouldn't have given Fed Chairman Ben Bernanke the authorization to provide an approximate timetable to end easing.

Bernanke's comments are indeed blamed for the stock market's steep two-day drop.

The Dow plunged 354 points, 2.3%, Thursday to close at a seven-week low. Over Wednesday and Thursday, the Dow shed 560 points, the blue chip index's biggest drop since November 2011. The CBOE Market Volatility Index (VIX) soared 23% Thursday, above 20 and a fresh 2013 high.

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Stock Market Volatility: How to Beat the Market at its Own Game

By , Chief Investment Strategist, Money Map Report -

Many investors are convinced the market is stacked against them.

It is.... but not for the reasons you might think.

Dismal returns actually have very little to do with super computers, research, insider information or access to the trading floor.

The real issue comes down to something very simple - the difference between how individuals and professionals approach stock market volatility.

Most investors head for the hills when volatility rises.

Successful traders, on the other hand, embrace it because they know stock market volatility represents an opportunity.

I find this especially ironic considering how often I hear individuals tell me they invest because they want the "big gains."

Because most of the time they choke at the very moment when the upside potential is highest. Instead of buying when prices are low, they head for the exits.

This costs them big time.

The Perils of Stock Market Volatility

A 2011 study from DALBAR, a Boston-based research firm, shows that investors achieved a mere 41.9% of the S&P 500's performance over the 20 years ended December 31, 2010.

In other words, investors left 58.1% on the table.

The DALBAR study also shows that the average investor achieved only 3.8% a year versus the 9.1% annualized returns of the S&P 500 because they tended to jump in and out of the markets at the worst possible moments.

Adding insult to financial injury, Berkeley Finance Professor Terrance Odean's analysis of more than 10,000 retail brokerage accounts shows that the stocks investors sell tend to outperform the ones they buy.

In fact, Odean found that winning stocks went on to gain an average of 3.4 percentage points more in the year after they were sold than the losers to which investors clung.

The pros have a very different view.



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