Obviously if it keeps going down, that’s bad. But it looks like it’s at a support level and still much, much higher than it was 5 years ago. (Using SP500 as a proxy for the market at large)
In: Economics
The stock market is a long term idea. If you are trying to game the system you are probably going to lose $$
It’s not actually that bad. People get scared by short term volatility and ignore the much more important long-term trends.
It’s not really bad but people tend to take a short term view of their investments. This is also distorted in the media because, if we’re going to look at the SP500, 30% of the SP500 index is made up by only six tech companies: Apple, Microsoft, Nvidia, Amazon, Meta, and Alphabet. The vast majority of SP500 companies are down this morning, but the heavy weighting on a few companies can exaggerate the effect. Similar problems exist for the NYSE and NASDAQ.
[https://www.slickcharts.com/sp500](https://www.slickcharts.com/sp500)
These are not household traders panicking. You’re seeing large funds maneuvering because the Japanese finally increased their interest rates above 0%. That’s right, 0%. Though it only increased it to 0.25%, we’re seeing a major downturn because many funds used Japan’s currency (yen) as cheap foreign exchange collateral and are now frantically selling very nicely appreciated US stocks to wiggle out of their Japanese cash positions.
9 times out of 10, whenever the question “why economy bad now?” comes up, the answer isn’t the economy. It’s these large funds making big money moves.
If you bought in 5 years ago – you don’t care much. It’s a correction.
If you bought in near the peak, you’ve just lost a bunch of money
Because Finance people are obsessed with Up and to the Right which is just unrealistic, so they panic that markets shift with reality.
While the price is the same as months ago, the price that investments were made at is not.
Lets say I buy Pear Company stock for $10. In 20 years it goes up by 600% to 60. One year later it drops 50% to 30.
Okay I make $20. If I sold a year ago I’d have made $50 though.
Now let’s imagine you bought Pear Company for $60
If you waited a year youd have lost %50 of your money!!! How long would you have to wait for it to go back up just to break even?
That’s why it’s bad. Everyone that bought stocks in the last few months is losing money.
Now in our example you could have mitigated how much you lost. Instead of 30, you could have sold as soon as the stock dropped to 50. You’d have lost 10 instead.
But selling makes the price go down because you get more sellers than buyers so you have to lower the price more to sell.
**This is the threat with the stock market. Billions of dollars are invested and if the stock market drops they need to sell to avoid losing too much money. But everyone doing this all at once will make all the stocks drop more.**
Yes the stock market is purely psychological. And we know how people will react, so we are worried about that.
It’s only bad for people who day-trade and who buy/sell high risk options. For the majority of people who just have 401ks or index funds, it’s not bad at all. If anything, it’s good because it’s an opportunity to buy more at lower prices.
Markets are a forward looking economic indicator. They are very good at consuming information and making predictions about the future. If the market takes a significant downturn in a relatively short period it can be an indication that financiers are predicting an economic downturn in the future. I say may, because markets also dance to their own fiddle. Like you alluded to, nobody makes a profit until they sell. If financiers are sitting on significant paper profit like many are now, they will want to turn that paper money into real money. Which is ironically printed on paper. If that is what is happening then you would expect markets to start to bounce back relatively soon. The problem is that right now nobody can be really sure which situation we are in. A huge down day like today can be an indication that we are at the bottom, with all speculators having sold off only leaving long term investors. If that’s the case the market can only go back up. Or it’s the start of gloomy economic days. It will be easy to see in hindsight which is was.
People/firms decided that it’s time to cash out profits and also need to rebalance their portfolios. Both require cashing out positions and hence bringing the market down.
Also different economic situation requires different sets of contracts for derivatives so a lot of adjustments based on that as well.
No one at the big investment firms are panicking.
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