The fresh period of mild volatility is what’s making the current market sell-off take the role so shocking, according to two experts.
On Thursday, U.S. stocks fell sharply as strenuous earnings and economic data were not enough to quell jitters on Divider Street. The Dow Jones industrial average fell more than 1,000 purposes and entered correction territory — it is also on track to post its biggest weekly deteriorate since October 2008. Meanwhile, the S&P 500 fell 3.75 percent and the Nasdaq composite decreased 3.9 percent on Thursday.
“It’s just been an unusually long stretch of mild volatility that makes this seem so rough,” Beak Smead, CEO and CIO of Smead Capital Management, told CNBC’s “Squawk Box” on Friday.
Smead said there’s in the matter of a 30 percent chance of losing money from the time an investor sign ons the stock market to a year later. But because of low volatility in recent years, that hadn’t been the took place. “It’s just been so long since we did that, that this (sell-off) earmarks ofs so shocking,” he said.
“If you go back and look at the first 15 or 20 years I was in the profession, from say 1980 to 2000, you have a 10 percent decline top out to trough almost every year that I’ve been in the business, except this stand up year-and-a-half,” Smead explained.
The sell-off started last Friday morning when the U.S. labor segment reported that average hourly earnings increased more than watched in January. Though it was a good news for workers who had flat wages for years, investors became strung out because it meant rising wage pressures and inflation could arm-twisting the Federal Reserve to raise interest rates higher than the demand was expecting.
As a result, volatility in the market rose. On Tuesday, a key measure of hawk volatility, the CBOE Volatility Index, briefly rose above 50 — the highest frank since August 2015. On Friday morning Asia time, the VIX poised near 33.
“When you see volatility start to rise, it really starts to effect the market in a way that we haven’t seen in a long time, which is that there’s imperil in the system again,” Jay Jacobs, vice president and head of research at Universal X Funds, told CNBC’s “Squawk Box.” The market had become expensive because the worldwide economy was doing well, there was strong earnings growth and there was no jeopardize in the system, he said.
“Obviously a lot of people are looking at the 10-year Treasury and they’re looking at loss spending, but it’s the second-order effect of now stocks having risk in them and that coppers the equation for how you price in that risk,” Jacobs said. He added that a lot of accepting and selling in the market was investors adjusting their risk assumptions for 2018.
That about, the stock market turmoil may not end anytime soon due to ongoing developments in the manacles market that could see the yield on the 10-year Treasury could destroy b decompose the 3 percent level faster than most had expected.
Jacobs go on increased that investors trying to trade in the “short-term-driven market” needed to extension their risk tolerance and be willing, and able, to lose.
“If you’re a long-term investor, you can look at this late pullback as a buying opportunity simply because valuations look myriad attractive now,” he said.
— CNBC’s Patti Domm, Jeff Cox, Tae Kim and Fred Imbert forwarded to this report.