Volatility Up, Dow Down

After an incredible run, the Dow began a correction that reached 10 percent during intraday trading since the volatility ramped up on Monday, January 29, the day before the State of the Union. The 666 fall-off on last Friday (Feb. 2) shifted the investor attitude to watchful anxiety. The 1175 drop on Monday (Feb. 5) reflected panic. It was the largest point downturn in Dow history and a significant percentage drop of 4 percent. Dow at lower levels produces greater percentage declines. The 508 point drop in October 1987 was 23 percent of the market.

Clearly volatility is up, with 500-point swings becoming common. In fact, Tuesday, February 6, the trading range was 1167 points, the second largest in history. It’s also clear the synchronized worldwide growth trend can quickly become the synchronized worldwide sell-off, with indexes in Asia and Europe showing point drops equal to or greater than the Dow (Tuesday, Feb. 6 Europe down 2.4, Nikkei 4.7).

The President has finally figured out it’s best to talk about the fundamentals and end the endless stock touting. The new debate centers around the possible inflationary effect of the Republicans’ fiscal policy of a massive debt-financed tax cut nine years into an expansion.