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Montana financial advisor explains Monday's market drop

Posted at 10:07 AM, Mar 10, 2020
and last updated 2020-03-10 12:07:55-04

GREAT FALLS — Circuit breakers kicked in early Monday morning and halted all trading on the New York Stock Exchange for 15 minutes for the first time since 1997.

The are automatic safeguards that are designed to catch a market in free fall, like a safety net below a trapeze artist.

“What happens is a trigger will be hit, it’s a circuit breaker, is what it’s called,” explained Great Falls-based Edward Jones Financial Advisor Kelley Aline.

“If the market trades down 7%, 15% or 20% -- if it goes 7% and drops that quickly, or if it goes 15% and drops that quickly, the trading will actually freeze or halt for 15 minutes. If the market drops 20% or more, then it will actually halt the trading for the rest of the day. That does not happen that often.”

A number of things usually contribute to major jumps and dives in the stock market.

On Monday, it was the continued fear surrounding the spread of coronavirus (COVID-19) and a major crash in the world’s oil market.

There is good news, however. The circuit breakers did exactly what they were supposed to do, as the rest of the day following the crash was not great, but the market didn’t crash through the floor.

That might not sound like good news, but when you consider that terms like “complete pandemonium,” “shell shocked,” and “Black Monday” are being thrown around after the market mess, it’s safe to say it could be worse.

“Before when we’ve had major bear markets or recessions, what we have seen is the fundamentals behind the companies, the problems behind those fundamentals, and we don’t see any of those problems,” Aline said.

“What we have right now is really fear and emotion that’s driving what people are choosing to do with their money, whether they’re buying or selling out, and…we don’t think it’s the fundamentals behind the market for why it’s going down,” she added.

Basically, Aline is predicting that these market woes are short term, and although there is currently no end in sight for the coronavirus outbreak, the structure of the stock market remains strong, even if Monday was a bad day.

“I mean sure, it’s your money, it’s your savings, it’s scary,” she said. “But at the same time too, before the coronavirus happened, the market had solid fundamentals. What we saw was we saw the lowest unemployment rate in 50 years. We saw wage rates growing at 3%-plus for the last year, we saw households in good shape, consumer spending in good shape, we have good mortgage rates.”

“And now, we have this drop in the oil, which may translate to us when we fill up our cars -- it's costing less money. So, we do think that consumers are actually in really good shape for it to rebound and rebound well,” Aline added.

So, what should you do with your money if you have some in the stock market?

“I would just tell investors right now, just don’t lose sight of your long-term strategy. Use this as an opportunity to reassess and gauge your emotional response to what you’re seeing in the market,” Aline explained.

“Historically, long-term investors do better than day traders. Having that long-term perspective on what your investments are, and what is your strategy? What is your goal? Right now, I think they have to focus on what that goal is, and not let that short-term fluctuation dictate their entire strategy.”

In the end, the market is unpredictable. While it’s been an up and down rollercoaster almost nonstop so far in 2020, it’s impossible to tell for sure what will happen tomorrow, and the next day, and the next day. The stock market fluctuates normally, without even taking into account the major events happening around the country all the time.

Similar drops happened when the SARS virus started to spread in 2003 and the Swine Flu fear swept the nation in 2009. On the other end of the spectrum, events like the release of the first iPhone in 2007 and the Apollo 11 mission in 1969 when man first walked on the moon have had positive impacts on the market.

The market seems to operate in phases, and this is likely just another phase.