If you are quiet, you might just be able to hear it – the calmness. Since the first of the year, we have seen a pretty calm stock market. The first quarter was definitely an up market, but a calm one. The positive 12.59% was the result of a pretty steady run. Sure, we had some down days in there, too, but all together, it was a pretty relaxing time for investors. Let’s break it down.
During the first three months of 2011, there were six days where the change in the value of the Dow Jones Industrial Average were greater than 100 and seven where it was “greater” than 100 in the wrong direction. The first quarter of 2012, by contrast had five 100-plus up days, but only one 100-plus down. That is the kind of volatility that we like to see.
(In case you are wondering, for all of 2011, there were 53 100-plus up days coupled with 51 100-plus down days. Evenly split, but 50 big down days in a year are pretty hard to handle.)
The absence of downside volatility is enjoyable, but don’t get used to it. There are several situations where we could see some additional big downward swings. Similar to what probably caused the lone occurrence during the first quarter – profit taking. Investors saying, this is too good to be true, so I am going to take some money off the table. When one starts, it may make more join in, which will drive the market down. Globally, if things escalate with Iran or with Syria, we may see our markets take a dip as a result. This would likely be based on speculation regarding what will happen with oil supply and price and how it would affect our economy.
Generally, our economy is doing better. Employment is slowly getting better. Housing is – hopefully – finding the bottom. The consumer is spending and feeling better about the economy. And normally, in an election year, markets don’t do much that we might consider spectacular. So, as long as the countries outside our control don’t do something that causes us a problem, we should see a pretty good year for the stock market. But, as I said in my last monthly E-Newsletter article , be wary of predictions.
Enjoy the peace and quiet – for as long as it lasts.