Dow futures soared 5% Friday and triggered ‘limit up’ trading rules—here’s how that works
Bolsonaro tested negative for virus announced and market goes wild.
In the main story is a link to another story:
“Why did coronavirus plunge stocks into a bear market so fast? 5 things investors need to know”
The authors left out an elephant in the room, and that elephant is part of the “recent” past few years of greater volatility.
The authors left index funds out of any fault in the volatility. That I think is a big error and misses a major change that has taken place in equity markets.
From a 2019 WSJ article:
“Funds that track broad U.S. equity indexes hit $4.27 trillion in assets as of Aug. 31, according to research firm Morningstar Inc., giving them more money than stock-picking rivals for the first-ever monthly reporting period. Funds that try to beat the market had $4.25 trillion as of that date.”
And what are index funds? They are lemmings. Their managers do not get up in the morning and look what looks good, or bad in terms of individual stocks, or what looks rational or irrational in the market’s behavior. The managers of an index fund don’t make trade decisions. The purpose of an index fund is to just sit and go in whatever direction the market in an index goes. An index funds just as mathematical algorithms, watching what is happening in an actual index, that robot like set the index fund’s trades in motion. A slight edge of a movement down in the Dow Indutstrial index and every index fund based on that index must sell to keep itself proportional with the Dow index. So all Dow industrial index based index funds merely follow - pile on - a downward move. Lemmings.
But actual value and hedging and speculative trading by others sets the index moving, then the lemmings just follow and now the lemmings hold more of what must move than whoever starts the snowball rolling.
Oh boy, a fix for everything, even stock optimism.