Market Monday: Stomaching This Stock Market Drop?

Who: Public equity market participants.

What: S&P 500 down 4.6% on the day.

When: Monday February 5, 2018

Why: Rising bond yields was the claim…

My Thoughts

The S&P 500 is down 4.6% after trading closed on Monday, continuing a two-day slide. How are we doing out there folks? If you are feeling nervous it might be a good time to turn off your computer or television and go outside.

This is when your stomach will be checked for investing in equities. The reality of the situation is you will see many scary headlines such as the following below.

Dow craters as much as 1,200 points as stocks swing wildly in 2nd day of selloff

Dow ends more than 1,100 points lower as selloff deepens

Dow plunge briefly tops 1500 points as stock rout intensifies

For those that follow Damn Millennial on twitter you would have seen the quote of the day on Saturday morning.

“Unless you can watch your stock holding decline 50% without becoming panic-stricken, you should not be in the stock market”. -Warren Buffett

Reread this again and realize that the public equity markets are risk assets with historically high volatility. You must accept that it will be a wild ride and what we see one year will look different then what we can expect to see the next.

The ride is a random walk and we all must embrace this. Hopefully you caught the 5 things to do when everyone is getting rich post and acted accordingly. If you your asset allocation is to aggressive you will be able to tell today by your emotions.

I recommend you stay the course, stick to your plan, and avoid the noise.

What Are Your Thoughts?
  1. When the market has a strong drop how does it effect you psychologically?
  2. Does a move of over 5% in two days make you change your strategy?
  3. How will you feel if the market is down another 10% by the end of the week?

Spread The Wealth!

30 Comments on “Market Monday: Stomaching This Stock Market Drop?”

  1. DM, We have now returned to stock market values of late last year. It was a mere few weeks ago during the holiday season. I felt pretty good back then, so I see no reason to feel differently now. Unless an individual put all their cash in the market a couple weeks ago at the highs, it really is just noise in the system at this point. I don’t want to revisit the panic of 2008-2009, but for now I’m okay. Tom

    1. I agree with you Tom I think it could be an interesting year now with more volatility.

      Better to discuss it then to have people panic on their own.

  2. Hi DM, I feel the same as Tom. I have a bit of cash and if it goes down a lot more I will start dollar cost averaging in.

  3. As long as I can continue earning a paycheck and contributing to retirement, I’m fairly OK. Actually, it would be good to drop as I have a long way to go and I can buy low. And as long as the fundamentals of the economy are still there and companies continue to pay and increase their dividends, I’ll be able to sleep at night.

  4. I’m going to stay the course to matter what happens, probably going to buy more if the market keeps falling. That’s when you can get the most bang for its buck!

  5. What a timely post! 🙂

    Volatility is just another word for opportunity!

    The funny thing is I actually didn’t know about the big market drop until I saw my Facebook messenger chat blow up. These days I only check the market and my stocks a few times a week.

    Here’s what I’m doing:
    1. Holding extra cash to buy (which I did today)
    2. Don’t panic sell
    3. Refine your “buy list”

    1. That’s the way to do it! I am guilty of checking daily the movements not my account value.

      There is just a natural interest for me and it is more exciting then tuning into the news for me 🙂

      I like your list, great plan.

  6. Great post DM!

    I see that you state rising bond yields for the why, but then finish it off with the ellipses. Is there another reason why you think this is occurring? Do you think the change in the crypto currency market has anything to do with it?

    1. The rising bonds are the claim…but markets always act in odd ways. It was a crazy run up in January and all of 2017.

      My guess is only as good as the next persons as to the why…

      For the crypto space I do have a prediction though. Many foreign countries are really cracking down on it and whenever this happens it sends prices sharply down. The reason it bubbled up so high this year though is because the mainstream investor caught on. No longer was it just people selling drugs on the internet using the crypto.

      It became mainstream and I think many people traded it throughout 2017. These folks might have been a bit inexperienced with US tax law on ST cap gains. If they purchased $5,000 of crypto and it shot up to $25,000 and they sold they have a $20,000 ST Gain taxed at their highest ordinary income bracket. I don’t think they set any money aside and reinvested the proceeds.

      If you are in a 28% bracket you you are looking at a $5,600 tax bill (federal).

      Now that taxes are coming due I think many will struggle to pay the tax bill without selling out of their positions driving the price even lower…

      So my guess if I was playing the crypto markets is that we will continue to see downward pressure. A scare in the stock market does not bode well for confidence in crypto speculation either. I have not horse in that race though so this is just my guess, not for me!

      1. That is definitely a unique take on that crypto situation. I think you’re right in saying that most people investing in crypto markets may not understand how their tax situations are going to play out, or perhaps won’t understand why their being taxed at all, and won’t be able to pay the tax bill.

        Thank you DM! 🙂

  7. My perspective is always longggg term so I don’t think I have a problem stomaching in the losses. I admit though, I’m sad but I’m not going to sell lol!! Can’t do anything about it… it’s just paper gains/losses, and I am not crazy enough to realize loses should it tank like a mother f**er!

    Woo hooo… I FEEL $X poorer now… let’s celebrate and buy some more!

    1. Good attitude!

      Have to have a long term perspective. Just because stocks have amazing liquidity does not mean that we should all be concerned about pricing on a day to day basis.

  8. This correction was much needed. I am surprised it didn’t happen sooner actually. Looks like the smart long term investors all took advantage of this and were able to make a few purchases, myself included. I don’t fear market dips because I invest in quality companies that can and have a record in the past, of outlasting the conditions. And if you don’t actually sell, those “loses” aren’t realized. Buy and DRIP dividends at the lower costs and it will reward you for holding in the future.

    1. Agreed, setting up the DRIP is an awesome way to consistently buy back in with paid out earnings. As an investor still in my 20’s it only gets me excited and motivated to invest more!

    1. Right on!

      If you are just getting started I would not stress it at all. Just focus on throwing tons of cash into sound diversified investments.