Home Economy A Major Market Pullback Could Cause Panic Among Investors

A Major Market Pullback Could Cause Panic Among Investors


The U.S. major market averages have been on such a tear lately that many investors may not be ready when the markets tank. Seasoned investors believe there is no imminent danger of a major downturn in stocks, and the low volatility index, also known as the VIX, is proof that the current bull market is safe.

The VIX has been at or near some of its lowest levels on record, according to MarketWatch. In turn, the Dow Jones Industrial Average, NASDAQ and the S&P 500 continue to set record-breaking levels. The Dow is just 200 points shy of closing at 22,000, and many pundits now believe that quiet markets with low volatility are now the norm. This complacency leaves some analysts fearing a major market pullback will hit investors hard due to a lack of experience with sudden stock price drops.

Some financial experts believe a drop of 2.5 percent, which is 550 points at the Dow’s current level, could cause panic among investors who have never experienced such a pullback. A 5 percent drop is usually inevitable, but many bears have not signaled that a slide in the averages is imminent. However, some analysts caution investors by pointing out the skyrocketing valuations of tech companies such as Google, Apple and Amazon.

The markets have shaken off political unrest, infighting within the Trump administration and the Federal Reserve’s attempts to raise interest rates. However, this level of low volatility worries seasoned investors such as Robert Shiller and billionaire investor Howard Marks, the head of Oaktree Capital Management. Marks states that the current market conditions present a “time for caution,” by pointing out the trailing 12-month PE ratio of the S&P 500 is running at 25 times earnings. Shiller states that the current feel of the markets “keeps him awake at night worrying.”