The good times can’t last forever. After the stock market was on a tear in 2017, it now appears that “volatility” lies ahead. USA TODAY
The stock market’s wild ride since Friday has captivated millions of casual investors who rarely follow its daily movements so closely.
The news reports, in turn, have bombarded the uninitiated with stock market lingo that may sound strange.
Here’s a quick glossary:
• Correction. A market drop of at least 10%, which typically occurs about once a year. After big sell-offs on Friday and Monday, the Dow Jones industrial average was down 8.5% from its peak in late January. So it stopped short of a correction, but that didn’t make the freefall much easier for frazzled investors. The last correction ended in February 2016.
• Pullback. When a specific stock or the market retreats 5% to 9.99% from a peak, as it did Monday for the first time since mid-June 2016. While corrections may prompt some investors to reach for the Xanax, pullbacks can also be unnerving after long stretches of market calm. That said, pullbacks — which normally occur three to four times a year — are viewed as healthy and as buying opportunities.
• Volatility. How much a stock or the market fluctuates in a period of time. Markets have been volatile recently, with massive sell-offs Friday and Monday, a big partial rebound Tuesday and wild intraday swings in between.
• Bear market. When a stock or market index falls 20% or more. The stomach-churning drop on Friday and Monday didn’t come close. Time will tell if the market has stabilized and can avoid the dreaded bear.
• Bull market. When stock prices are rising. U.S. stocks have been in a bull market since March 2009, the second-longest in history. During that period, the Dow has more than tripled in value.
• Rally. A sharp increase in stock prices. Stocks rallied 567 points Tuesday after plunging more than 1,800 points the prior two trading days.
• Circuit breaker. No, it’s not the switch you flip in your house to turn off the TV when market news gets too depressing. It’s the measures the New York Stock Exchange and other exchanges put in place to halt trading in the event of massive declines during normal trading hours. They’re meant to avoid panic selling. The mechanisms temporarily halt trading after declines in the Standard & Poor’s 500 index of 7% and then 13% that occur before 3:25 p.m. in a given day. A drop of 20% would stop trading for the day. S&P 500 declines of 2.1% Friday and 4.1% Monday fell well short of those thresholds.The policy was adopted after the 22.6% market swoon on Black Monday, Oct. 19, 1987.
• Moving average. A stock’s, or the market’s, average price over a period, such as 50 days or 200 days. On Monday, the S&P 500 fell below its 50-day moving average, a dispiriting benchmark at the time.
• After-hours trading. Trading that occurs via electronic networks after the market closes at 4 p.m. Trading volumes are typically low and, as a result, prices can be volatile, with sellers unable to get their desired price for a stock sale.
• Stock futures. Contracts to buy stocks or other securities at a specific price and date. They’re essentially bets on what stock prices will do in the future. In recent days, stock futures have plummeted, seemingly signaling further declines the next trading day. But those contracts are often based on instant emotional reactions and were defied by rallies when markets opened that were based on more reasoned, longer-term analyses.
While many investors take comfort in the possibility a setback to their nest eggs might be short-lived, the Wall Street sell-off feels shocking to others. Sam McElroy, co-founder of @Financial, says how to react depends on your age. (Feb. 6) AP
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