As if the three major market indexes weren’t enough with the recent volatility, the CNN Business Fear & Greed Index has recently pegged itself far to the left, signaling investors are in a state of “extreme fear.”
The Dow Jones Industrial Average couldn’t make it three winning sessions after it rose over 100 points to start the trading session before ending on a 76-point loss. The Dow saw its largest single-day gain last Wednesday with 1,086 points, which was followed up by a volatility-soaked 260-point gain on Thursday.
Still, the up-and-down nature of the markets has investors squeamish, particularly after a 653-point Christmas Eve drubbing–its worst pre-Christmas Day performance. While some analysts may cite that volatility is normal in the markets, deeming it “healthy” would be a misdiagnosis to others.
“I wouldn’t use the word healthy” to describe these moves,” said Marc Chaikin, CEO of Chaikin Analytics. “I’d say it’s been disturbing for investors.”
As the Dow fell more than 2 percent, the S&P 500 and Nasdaq Composite followed its lead.
“It was the perfect storm of negativity,” Chaikin said. “What I think we’ve seen is a crisis of confidence in Washington. It’s sort of unprecedented and so the extremes in sentiment are all at bear-market low extremes.”
“There’s been panic and fear. When you’re in conditions like that, you never know when they’re going to reverse,” Chaikin added.
Of course, with the recent spate of sell-offs, it has investors wondering whether the pain is over. Some analysts say the worst might be over, but the volatility could be lingering through 2019.
“I’m not sure we made a bottom. We certainly may have made an interim bottom here, and when valuations get to these levels it solves a lot of problems,” said Maris Ogg, president at Tower Bridge Advisors. “The crazy gap downs are probably over, but I’m not expecting the gap up.”
Furthermore, with the markets roiled by volatility for much of the fourth quarter, earnings reports could trigger even more sell-offs.
“I think the fourth-quarter earnings calls are not going to be fun because you’re going to see the magnitude of the softening,” Ogg added.
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