You generally also see this in markets, in particular, the stock market. The ups and downs from day to day are referred to as volatility. Volatility is the range by which a security or a market may increase or decrease over a period of time.
Securities or markets that have higher volatility are considered inherently riskier that securities that have low volatility. That applies to both stocks that go up, as well as down, quickly or erratically.
Stock market pricing is interesting because on a day to day basis there is usually not a substantive reason why a stock price moves up or down. Business prospects do not usually change for the good or bad in a day, a week or a month. What moves markets or stocks in the short term are the emotions of buyers or sellers.
I like what legendary investor Benjamin Graham said about the stock market many years ago.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Why is this of interest to me today?
Who are we led to believe every day in watching in the news is the most unbalanced, unreasonable, unhinged, volatile person on the planet?
President Donald J. Trump.
To hear liberals, the media, the political establishment and Hollywood talk about Trump, none of us should have any confidence in our future. Chaos will reign. Calamity is upon us. Everything and anything about Donald Trump is utterly contemptible.
How is that emotion-driven, voting machine of a stock market reacting to all of this?
Yes, we know the stock market has steadily risen ever since the day after Trump was elected. In fact, the Dow closed today at a record high for the 12th consecutive day. That has not happened since 1987. That says something by itself. However, let's put that aside.
Let's just look at stock market volatility. You would think by watching the news that stock market volatility would be high given the "risky" environment that Trump has created. Investors do not like uncertainty. It is hard to be confident about the future when things are uncertain. Uncertainty and risk should contribute to volatility.
That is why I found this chart in The Daily Shot this morning to be particularly interesting. It shows that stock market volatility, as measured by consecutive days without a 1% intraday move up or down in the S&P 500, is the lowest in well over 50 years.
As of Friday, there had been 48 consecutive trading days without a 1% intraday move as the chart above shows. That is now 49 days since we did not see a 1% intraday move today (February 27).
Stock market volatility has been at historic lows since Trump became President while the political vitriol of his opponents is at historic highs. Rather interesting, isn't it?
If the stock market is a voting machine in the short term, there seem to be a lot of votes out there for what Trump is doing and what he is promising. For all the talk of the "erratic" Trump, the stock market is reacting as if we are sailing on a silky smooth sea.
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| In the middle of the Pacific Ocean on my TransPacific cruise last August |
However, the calm seas we are seeing now are sure to turn rough soon. It is the nature of the world, life and markets that ups and downs are inevitable. I can promise you that rough seas of some sort lie ahead. The stock market will not go up forever. And it will surely bounce around and make us feel as if we are a on raft going over Niagara Falls at some point.
In the long run, the measure of Donald Trump as President of the United States will not be determined by the volatility of the markets, the volume of vitriol directed at him, or Trump's vision to "Make American Great Again".
In the end, everyone will weigh his results.
That is how it should be and how I believe Trump measures himself.
It would be nice to see a few people take a deep breath, save some of the vitriol and see what he can do.
How do I weigh the chances of that occurring?
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