By recent historical standards, Monday's sell-off was rather extreme. The DJIA and S&P 500 suffered their largest daily declines since August 2011, as fears about, well....just about everything, prompted investors to sell just about everything. That's not totally true, as Gold (GLD) managed to shine a little in the downpour. However, the Dow did see its biggest intraday point drop in history, as 1600 points were wiped off the big board after 3 p.m. Wall Street time. Some of that came back by the closing bell, but the damage was done. So much for January's jump start as we are now 0.9% lower in 2018 than the good old days of 2017. By now, you know all this.
What we find fascinating is what our readers and those who find us through Google and other search engines seek in times of intense market volatility. The human need for knowledge, especially in times of fear, is primal and fierce. We know this by looking at our own Investopedia Anxiety Index, which measures search volume against fear-based terms like short selling and volatility. As I wrote last week, the markets-based terms that make up the index finally woke up after a very long nap and started screaming like a hungry infant on Thursday and into Friday. By Monday afternoon, it was in full tantrum, throwing toys, bottles, dirty diapers and shluffys out of the crib and threatening war. Indeed, it was the intense search traffic to key terms and articles that tipped the Index into the "Extreme Anxiety" zone.
Here are the top terms that were spiking on Investopedia as the market was selling off:
- VIX - CBOE Volatility Index: Experienced investors know what is often referred to as "The Fear Index" quite well, but many others may have heard about it for the first time in recent days since it has been extremely quiet for nearly a year. Anyone trading the VIX, or ETFs like VXX (VXX), SVYX (SYVX), which is the inverse of the VIX, has been on a wild ride since last week, and betting against volatility has been a crowded and painful experience of late.
- Circuit Breaker: Kind of like the breaker box in your basement, except this one can shut off the juice at the major securities exchanges. As the DJIA was free-falling into its biggest daily point decline ever, investors were waiting to see if the exchange was going to flip the switch and halt trading to let humans catch up with the computer-driven sell orders. That didn't happen Monday, but many people thought it might.
- Bond Yield: Don't blame the rising long-term bond yields for the sell-off, although many people might. They've arguably been artificially low since the financial crisis, but the Fed's steady increases in the overnight lending rate and whispers of inflation are pushing the 10-year bond yield higher. It's finally providing investors a reasonable alternative to stocks. Readers were trying to understand this dynamic and came to us for answers.
- Correction: We are not there yet, but we'll see what the rest of this week brings. A 10% decline from a security or index's high represents a correction, which is halfway to a crash. Corrections are fairly common, albeit not lately. They present good opportunities to re-position and potentially reload. Crashes are not nearly as gentle.
- Short Selling: The bearish bet on future declines has been parading around in full fur lately. It's a very risky maneuver for those new to the markets, but highly tempting given the potential payoffs. We recommend you study up before going short, and that's likely what our visitors to this term were doing.
We write a lot of articles and FAQs as well, and those give an even more nuanced look at our readers' curiosity. Here are five of the most popular articles on our site from Monday:
As they used to say on Wall Street, the market rises like a staircase and falls like an elevator. Extreme sell-offs can be rattling, especially when it's hard to find a distinct catalyst for them. There have been many that had the potential to do so over the past year and throughout this long bull market, but nothing or nobody can take exclusive credit for this one. We are not here to make predictions about what might happen and when. You don't come to us for that, thankfully. You and millions of others come to our site to try to demystify the financial and investing world in good times and bad. We do our best to give you what you need and more, and that's our great honor and responsibility. No matter what happens Tuesday or for the next 10,000 Tuesdays, we'll be here for you.
Caleb Silver - Editor in Chief