As stocks plunge again, NJ investors get worried
After calm, steady growth for years, Wall Street is suddenly bouncing up and down like a yo-yo.
Many New Jersey investors were alarmed as stocks plunged dramatically more than a thousand points on Thursday for the second time in a week.
“When it comes to volatility, people have to realize that the markets we grew up with are not the markets that we’re in today,” said Ken Kamen, the president of Mercadien Asset Management.
“With the growth of passive investing, things like exchange traded funds that allow people to quote-unquote buy the entire market with one security, you’re really getting a herd mentality,” he said.
“It really begs the question, whether these new passive investments are the most efficient way to invest or are they just the most efficient way to create herds?”
Kamen said technology has set up the stock market to suddenly take wild swings for no real substantive reason.
“Now, with the click of a mouse, you can buy and sell these baskets of stocks, which is creating tons of volatility," he said.
“Professional traders and hedge funds to do what I call risk on-risk off at a moment’s notice. So as soon as you get a momentum change in a marketplace, all the algorithms start firing off and momentum gets momentum.”
He said the kind of wild volatility we’ve seen over the past few days is a bit crazy because nothing has really changed since last week as far as companies are concerned.
Kamen said fear of inflation has fueled the current market swoon because people are concerned companies won’t make as much money if they have to pay more for labor.
When the fundamentals of companies are sound and our economy is still growing and we see this kind of wild volatility, “you have to recognize that’s not fundamental investing at work — that’s just market timers using newfound products to come in and out of the marketplace.”
While there has been downward momentum over the past week, Kamen points out we have seen a sustained period of positive upward momentum for a while.
“So people weren’t scratching their head when they were looking at their 401(k) statements and seeing them going up by big chunks on a weekly basis, but when they were coming down quickly, everyone was panicked.”
Corporate profits have never been higher, and they’re projected to continue to grow this year, thanks in part to the new tax laws.
“So, if anything, corporate fundamentals have gotten so much stronger, but one could argue that the market got ahead of itself when it ran from 24,000 on the Dow to 26,000 seemingly overnight.”
He also said everyone has been expecting some kind of correction for a while, “so once you see momentum moving the other way, everyone is figuring, OK, that’s the dog whistle, it’s time to get out.”
You can contact reporter David Matthau at David.Matthau@townsquaremedia.com