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Money News

Why Did the Market Drop 500 Points?

May 29, 2018

  • The markets dropped more than 500 points on Tuesday
  • The drop is attributed to worries about the Italian economy, falling bank revenues, and Chinese tariffs
  • The best thing to do? Stay the course.
2 min read

The stock market can be volatile—that’s no mystery to investors. But often, the reasons the markets are thrown into turmoil, and how to respond to it, aren’t as clear.

A handful of headlines drove the Dow Jones down by as much as 500 points. The apparent cause? Banks, tariffs, and political woes in Italy.

So what does this all have to do with your portfolio?

Let’s start with the news first.

Bank losses

JP Morgan and Morgan Stanley both saw their share values fall on Tuesday, dragging many other stocks down with them.

Morgan Stanley shares fell by more than 6% after an executive said that the company’s wealth management division was looking at challenging business conditions in the second quarter. The comments spooked investors enough to send the share prices spiraling for its worst day in two years.

JP Morgan’s shares also fell after remarks from an executive, as the company’s co-president Daniel Pinto said that trading revenues were expected to be flat in the second quarter.

Other banks had a bad day as well. Goldman Sachs, Citigroup, and Bank of America shares all fell by more than 3%.

(More) Chinese tariffs and North Korea

While the on-again, off-again White House summit with North Korea appears to be on again, the biggest ripples coming out of Washington D.C. had to do with additional tariffs levied on China.

The White House announced that it will release a list of $50 billion in Chinese goods in June that will be subject to a 25% tariff. The Trump administration also said it would be implementing investment and export restrictions in an attempt to curb theft of intellectual property theft from U.S. companies.

The announcement follows previous rounds of tug-of-war with China regarding trade, which also caused the markets to tank.

Italy: The next Greece?

The Italian economy continues to struggle a decade after the Great Recession, and the country’s still wracked with debt. Fears are that Italy could enter a deep recession, much like what happened to Greece.

What has the markets even more on-edge is the fact that Italy’s economy is ten times bigger than Greece’s, and Italy’s turbulent political environment that hasn’t produced a plan to right the ship.

Italy is the third-largest economy in the European Union, and its economic troubles could create a backlash affecting the entire eurozone and markets around the world.

Other fears: Will Italy exit the EU? Analysts worry about another Brexit situation and its effect on the global economy.

What should you do?

Take your finger off the “sell” button. It’s easy to start panicking when the numbers seem to be going the wrong way.

When you sell, you’re effectively locking in any gain or loss you’ve made. Stay strong, don’t let your jitters get the best of you.

Take a deep breath and take the long view. On average, if you look at the last 100 years, markets have grown a little over 8% a year. Going forward, many experts predict a long-term expected annual return for US large cap stocks (i.e., the S&P 500) of 5.9%.”

Here’s the hard truth: There are years where the market is strong and some years where the market struggles. You can’t sweat day to day market ups and downs when you’re investing for a lifetime.

We have a saying at Stash. It’s all about “time in the market, not trying to time the market.”

Stay strong. Stay the course. Stay diversified. It’s the Stash Way.

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By Sam Becker

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