Okay, so we can all admit that today wasn't the greatest day on Wall Street. The Dow closed down 1,175 points or -4.60%. Yes, this breaks the record for the worst day in Dow history in terms of absolute points. But take heart: in terms of percent loss, this doesn't even break the top 10 of the Dow's daily hall of shame.
So what exactly precipitated this seemingly unprovoked sell-off?
Well, not much.
Some point to the anticipation of higher interest rates. As of yet, the federal reserve hasn't budged from its plan to raise the federal interest rate a target of three times this year. The fed uses this interest rate to control inflation and to regulate the pace of the economy. The general argument is that rising interest rates will slow investments that businesses and consumers make through bank loans.
But the higher interest rate anticipation couldn't have caused this nose-dive because the Federal Open Market Committee didn't release any new information hinting at an interest rate target hike. We've known their plan for months now.
Others point to the recently passed tax reform bill. Specifically, the parts of the tax reform bill that aggravate our federal deficit, encouraging the climb from a cool $20 trillion today to a somewhat inconvenient $30-35 trillion in roughly ten years.
But again, this isn't news. The market didn't seem at all fazed when this budget passed nearly six weeks ago. If anything, it showed renewed vigor because of tax reform.
Something isn't adding up.
Could it just be that sometimes we behave irrationally?
We're humans. Sometimes we do silly things. As a day-trader in college, I learned that this market is extremely efficient. Except for when it isn't. In the long-term, a large crowd with money in hand has a strange knack for finding the appropriate intrinsic value of assets. In the space in between, there's a relatively small community of day-traders that make their living profiting off the short-term irrationality of emotional people.
To me, this sell-off is just a product of pent-up skepticism. Skepticism that things can't be this good, for this long. Skepticism bathed in memories of the Great Recession and close friends being laid off. My own personal skepticism is cloaked in the recollection of wondering if the economy will pick up in time for me to find a job when my military separation date arrives.
To those of you who are concerned, my message is this: there is a good reason to be concerned. There is almost certainly a time of economic slowdown approaching. But that time isn't now. The economic indicators are still good. Companies are still hitting profit targets. Don't hit that sell button if you are doing so out of fear or emotion.
Remember that it is the most disciplined investors that will win the day.
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