Calm down – this is normal. Yes, markets have been volatile. Yes, volatility in Asia was extraordinary, with Japan’s Nikkei suffering its largest one-day drop since Black Monday in 1987. Yes, Wall Street’s volatility index, the Vix, briefly hit its third-highest level in history, behind only levels seen during March 2020′s Covid crash and the global financial crisis.
Market commentary always gets excitable during turbulent periods, so there’s been much talk about trillions of dollars being “wiped out”. On CNBC, Black Swan author Nassim Taleb was even asked if this was a black swan event. No, replied Taleb, smiling incredulously. The S&P 500 falling 3 per cent in a day is normal; it would be odd to have a year where we didn’t see the likes.
Ritholtz Wealth Management’s Ben Carlson agrees, noting “it’s what happened before this” – that is, no volatility, with stocks advancing nervelessly – “that was not normal”. Even in strong years, it’s normal to have a correction. Indeed, the recent sell-off is quite weak compared with most years.
As for the trillions that have been “wiped out”, indices falling back to where they were in May is hardly a crisis.
Of course, it would be equally mistaken to assume the subsequent rebound means everything is hunky dory again. Sell-offs often come in waves, so repricing recession risk may play out over time.
In the meantime, investors must accept that volatility is, as the Carson Group’s Ryan Detrick puts it, “the toll we pay to invest”.
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Join The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
