Today's market action was extremely disappointing. On Monday, Oct. 13, the S&P 500 rallied 11.6%. That had many investors hoping the sell-off was finally over. Unfortunately, the market wasn't able to sustain Monday's gains. It gave up 0.5% yesterday. Today it plunged 9%.
Monday's rally and today's sell-off are indicative of the kind of volatility we've been experiencing lately. To measure volatility, market traders often focus on the VIX, which is hovering near all-time highs. A simpler way to measure volatility is to look at the daily percentage changes in a major index like the S&P 500. For example, during the first six months of 2008, there were 17 days on which the S&P 500 Index changed in value by more than 2%. The biggest change during that period occurred on March 18 when the S&P 500 rallied 4.24%.
Since then, however, volatility has skyrocketed. From July 1 to Oct. 15, there were 22 days when the change in the S&P 500 exceeded 2%. In the last month alone, the change in the Index exceeded 4% on 11 days.
Monday's almost 1,000 point rally in the Dow was nice, but it would have been better to see the Dow rally 100 points a day for 10 days. Investors have no confidence in stocks right now. They need to be convinced that rallies can be sustained.
While it is true that Even Buffett Isn't Perfect, he is clearly one of the greatest, and it is encouraging to see him putting money to work at this time. Buffett has complained for several years that he couldn't find anything worth buying. By pouring $8 billion into Goldman Sachs and General Electric, and making a couple of other key investments, he has obviously changed his tune.