By Al Emid  

Toronto – Canada

 

 

 

 

Al Emid has worked in communicating ideas and concepts since beginning his career at an educational television network in 1967.  He is the co-author and author of several financial books, most recently The Emid Report on Volatility 2019 available on all major book sites.

 

 

 

 

 

Chapter 21

A Textbook Example of a Cause of Volatility

 

 

 

Without doubt, making effective stock selection decisions has gotten tougher in recent years, especially for online investors trading without the ‘buffer’ of a licensed financial advisor.  The number of factors running through an investor’s mind has gotten longer and trickier as he/she debates pressing the ‘Trade’ button.

 

And there is a list of reasons for that change and I can only deal with one of them here.

In my book The Emid Report on Volatility 2019, I headlined geopolitical crises as a major cause of stock market volatility.  That assessment was not universally accepted and in my own defense I have to point out that I did not suggest that geopolitical crises were the only cause of volatility nor even the most important cause.

 

However, events of the second week of October have provided textbook proof of the connection between these crises and stock market volatility.  Early in the week, when a trade deal between the United States and China looked less likely, the Dow Jones Industrial Average — usually just called ‘the Dow’ dropped more than 800 points in two days. Certainly, not all of the drop could be attributed directly to trade tensions.  Part of it can be attributed to recession fears but some of the recession fears flow from trade tensions.

Then later in the week, with news of China’s plans to buy more soybean, of a partial trade deal, and other positive factors, the markets rallied.

 

The moral of this story is that — to a point but not to an obsession — stock decisions no longer rest solely on analysis of the company’s balance sheet, the quality of its management, its debt load and market prospects.   They now depend on a range of factors not directly tied to a specific company.

 

 

 

 

 





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