A Potential Issue is Developing--10/6/2014

 

During this latest bout of volatility the S&P 500 dropped from 2,019 to 1,941, before it bounced.  That equates to a drop of 3.86%.  And with this, the media began all kinds of chatter focusing on the "major drop" in the markets.  And, of course, lots of market participants and market watchers bought into the idea that this was a "major drop."  It wasn't!!!!!  Drops of this nature have occurred frequently throughout the history of the stock market.

The issue with embracing the idea that a 3% drop is a big deal is that when a real drop comes, 10%+, panic could set in.  And I really feel that is a possibility.  Both a drop of 10% or more, which I've discussed throughout my research, and market participants who panic during this time.

Of course the silver lining if something like this were to occur is that savvy portfolio managers might be able to anticipate this happening and sock away a little cash on the sidelines to be able to buy into the abnormally low pricing environment that such a panic could create.  When the panic subsides, prices should normalize, and profits could be realized.  But living through a panicking market is never fun.

So...just a heads up on something that MIGHT happen.