Dec 30, 2018

The return of an old friend

Expand chart
Data: FactSet; Chart: Naema Ahmed/Axios

Here's Matt Egan's summary of one month in the stock market, for CNN: "Not one but two 1,000-point plunges for the Dow. And a powerful comeback... easily one of Wall Street's wildest months since 2008... A real roller-coaster. A wild ride."

  • The month in question? February 2018. With all the other crazy going on in the world this year, you can be forgiven if you've forgotten all of February's noise already.
  • Stock market volatility is a fact of life. Irregular spikes in volatility — including the one we're in the middle of right now — are also normal. (Ben Carlson has a great chart of stock-market volatility going back to 1928 which also shows just how normal it is.) The difference this time is that market volatility has become politicized, thanks to numerous presidential tweets.
  • That said, if you enjoy rollercoaster rides at Christmas, last week would have made you really happy. The Dow's intraday range was 548 points in a half-day session on Monday, 1,166 points on Wednesday, 871 points on Thursday, and 401 points on Friday. (On Tuesday the market was closed.)
  • Needless to say, there was no news driving those swings. (Also, stop measuring Dow swings in point terms. The crash of 1987 was vastly bigger, and that was only 508 points.)

Be smart: A stock price is the discounted present value of a company's future cashflows. Tiny adjustments to expected future growth rates, or even tinier adjustments to the discount rate being used, can result in large swings in the fair value of the stock.

We see shares trading at a specific price, but conceptually it might be better to think of them as a probability distribution. Right now, those probabilities are wider and more uncertain than at any point since the financial crisis.

Legend avers that an alert young man once found himself in the immediate presence of the late Mr. J. P. Morgan. Seeking to improve the golden moment, he ventured to inquire Mr. Morgan’s opinion as to the future course of the stock market. The alleged reply has become classic: “Young man, I believe the market is going to fluctuate.”It did. It always has. Perhaps it always will.
— Laurence H. Sloan, Security Speculation: The Dazzling Adventure (1926)

Go deeper

AMD's hot 2020 start could lead to another S&P record

Data:; Chart: Axios Visuals

AMD was the best-performing stock on the S&P 500 in both 2018 and 2019, and it got off to a hot start in 2020, rising 7.1% on Thursday to touch a fresh all-time high.

The state of play: The stock rose nearly 80% in 2018, despite falling 40% during that year's disastrous fourth quarter, and it gained 148% in 2019, according to MarketWatch. The company's previous record high stock price was set June 21, 2000.

Go deeper:

Wall Street has its best year since 2013

Data: FactSet; Chart: Axios Visuals

Wall Street had its biggest annual gain in six years — with the S&P 500 rising 29% and the Nasdaq Composite rising 35% in 2019. The Dow lagged behind other indices, but saw its biggest yearly gain since 2017.

Why it matters: U.S. stocks rebounded from 2018's year-end meltdown to log impressive gains, despite uncertainty stemming from the trade war and a slowdown in economic growth.

When war pays dividends

Illustration: Aïda Amer/Axios

War. What is it good for? The stock market, it turns out.

The big picture: Don't pay too much attention to short-term stock-market gyrations. When you take a step back, it looks like war tends to be good — not bad — for American stocks.

Go deeperArrowJan 9, 2020