Market Volatility and the Dangers of Trading on Politics
The markets have been on a wild ride lately, with the S&P 500 jumping 9.5% in a single day. Looking at my trading app while sipping my morning brew at my desk in Richmond, I noticed a flood of messages from friends asking if they should jump back in. The recent market swings have certainly gotten everyone’s attention.
What’s particularly fascinating (and concerning) is watching how political manipulation seems to be driving these massive market movements. We’re seeing unprecedented situations where social media posts are preceding significant policy changes, leading to dramatic market swings that would make any regulatory body raise their eyebrows – or at least, they should.
The current volatility reminds me of conversations I had during the GFC when colleagues were panic-selling their investments. Several of them are still bitter about missing the recovery, having crystallised their losses at the bottom of the market. It’s a harsh lesson that seems to need relearning every market cycle.
The thing about market timing is that it requires you to be right twice – when to get out and when to get back in. Looking at historical data, the largest single-day gains often occur during bear markets. Miss those days, and you’ve potentially killed your long-term returns. It’s like trying to perfectly time your morning commute on the Monash – even if you get it right once, you’re unlikely to nail it consistently.
What’s particularly concerning about the current situation is the apparent manipulation through social media and policy flip-flops. The 125% tariffs on Chinese goods haven’t disappeared – they’ve just been postponed. The underlying economic tensions haven’t been resolved; they’ve just been temporarily masked by market euphoria.
The bond market is still showing signs of stress, and global trade relationships remain strained. These aren’t issues that disappear with a single day’s rally, no matter how impressive the numbers look. It’s worth remembering that some of the biggest single-day gains in market history occurred during the depths of major bear markets – 1929, 1933, and 2008 aren’t exactly years that inspire confidence.
Rather than trying to dance in and out of the market based on political whims, it makes more sense to stick to a disciplined investment strategy. Dollar-cost averaging isn’t exciting, but it works. It’s like my superannuation contributions – they keep going in regardless of market conditions, and over time, that steady approach has served me well.
The market will always have its ups and downs. Sometimes those movements will be driven by fundamentals, sometimes by politics, and sometimes by pure emotion. The key isn’t to try to outsmart these movements but to have a strategy that works regardless of them.
For now, I’m sticking to my regular investment schedule, keeping a close eye on developments, but not letting the daily noise affect my long-term strategy. The world might seem chaotic, but panic has never been a good investment strategy.
And if you’re feeling anxious about the market’s movements, perhaps it’s worth stepping away from the trading apps and news feeds for a while. The market will still be there tomorrow, and your mental health will thank you for it.