• A true, prolonged bear market can't be forewarned or foreordained by the mass media.
• This week's market volatility is perfectly normal, not a specter of ghosts past—stocks remain a great value for investors
Discounting an anomaly is impossible. What are the odds a squirrel catches fire and ignites a car? Like zero, right? Whoops…it happened!
Flaming Squirrel Ignites Car in Bayonne
By N. Clark Judd, Hudson County Now
Flaming squirrels are uncommon…but fiery car-igniting squirrels are downright anomalies! As a car owner, there really is no way to protect against such an event, is there? (Do most car insurance policies cover flaming squirrels, or is that just geckos? If so, does that fall under "acts of god," "collision," "arson/vandalism," or what?) We've written on the nature of market anomalies before:
Obsessing Over Black Swans (5/1/2007)
On the 20th anniversary of Black October, today's market drop (S&P 500 shed 2.6%) has some folks wondering if it's déjà vu all over again. But this is no new bear market and no downside market anomaly. This is barely a bump in the road.
Why? Many reasons. An important one is Black Monday took just about everyone by surprise. It's extremely difficult to have a true market crash everyone expects because that expectation will be baked in to stock prices a priori.
A true crash today would not come as a surprise—too many folks are worrying about it:
Crash and Quivers a Lesson, Not Guide
By Annette Sampson, Sydney Morning Herald
Watching for the Next Black Monday
Bryant Park Project, NPR.org
20 Years Later, Could Markets Crash Again?
By John Waggoner and Adam Shell, USA Today
Paint it Black
As a matter of fact, the so-called ills frightening today's markets are the oldest of this bull market!
Wall Street Walloped
By Alexandra Twin, CNNMoney.com
We quote: "Stocks slump, with Dow down 300 points on credit and housing sector woes, earnings fears, record-high oil prices, slide in dollar, questions about the Federal Reserve." Not a new worry among them! That's great evidence this is mere short-term investor psychology.
On Monday we gave our thoughts on why twenty years later a new Black Monday is highly unlikely:
Ghost of October Past (10/15/2007)
Keep in mind, the week's market drop is not even the largest one week drop of the year. This is still well within the confines of normal market volatility.
Don't fret stocks too much—their prospects for the immediate future are still stellar. This was just a rough week. But if you require further solace, here's some sense about 1987 and today:
The Truth About the Crash of 1987
Donald Luskin, Poorandstupid.com
Have a great weekend…and watch out for those kamikaze squirrels.