Monday’s manic stock market day was unsettling news for investors around the world, and in Chicago, but some experts say it’s not time to panic-- yet.
Seized by fears that the Chinese economy is not as healthy as it appeared to be, investors sold with abandon at the opening bell and sent the Dow Jones industrial average down almost 1,100 points, the biggest decline on record in a trading day. Then the market staged a dramatic comeback and almost erased its losses, coming within about 115 points of break-even. By late afternoon, stocks were sinking again — and the Dow was down 588 points at the closing bell, a 3.58 percent rout.
“Chine waved the white flag and said their growth isn’t as good as they thought,” said Brian Battle with Performance Trust Capital Partners. “So there has been a selloff in Asia and it finally made it here to the U.S.”
But Steven Esposito, a senior vice president with the wealth management division of Morgan Stanley, said investors shouldn’t panic.
“What you don’t want to do is let emotion control your investment decisions,” he said. “Look at your portfolio. Make sure it’s well-diversified. It may be time to upgrade a few of your positions, or pull back, but most of all, don’t panic.”
Many investors pick and choose stocks based on a company's business outlook, but there is an entirely different class of trader that relies on technical indicators to make investment decisions. Many of their screens were flashing "sell" this week.
The S&P 500 and the Dow have broken through a few key technical levels recently. One important one is their 200-day moving averages, which the two indexes pierced on Thursday, helping to fuel selling. Both indexes dropped 2.1 percent that day, before further tumbling on Friday. The good news is the last time the S&P 500 broke through its 200-day moving average, in early July, it bounced back from those levels after a few days.
Esposito acknowledged the news is “troubling” but said having a long-term plan is key.
“You shouldn’t panic because everyone else is selling,” he said. “Make sure you have a long-term plan and stick to it. These are very troubling times. Don’t try to be a trader, be an investor.”
Some experts believe the volatility is healthy and say stocks have gone too long without a correction.
The U.S. economy is looking healthier lately. Employers have been on a hiring spree, and that has helped push the unemployment rate to a low 5.3 percent.
Investors will get another clue on the economy on Thursday when the government releases its estimate of economic growth in the April-June period.