Yesterday when news broke of the tragic crash of Malaysian Airlines flight 17 the Volatility Index (^VIX), often referred to as the fear gauge, popped by 17%. It’s just the latest example of an external event that shouldn’t really impact the stock market doing just that.
Stocks have moved on the Russia / Ukraine conflict and Middle East fighting and any number of other exogenous events but as Yahoo Finance’s senior columnist Mike Santoli says,” these threats have proven fleeting time and time again.”
Still, he contends, “The reflex move was understandable. It’s pretty much textbook in terms of that risk off instinct...Then almost immediately people say ‘buying opportunity.’ It happened with Cyprus, it happened Ukraine in February, it keeps happening.”
As with others before it Santoli says if the market itself is healthy these blips will last no more than a day or two. Not since the World Wars, he notes, have true bear markets been caused by external factors.
On the other hand, Santoli says, if the market “had gotten over extended, overvalued or investor money was going to be moving away anyway,” an external event could be the catalyst to send things lower in a very meaningful way. If that were the case after several down days after such an event, then it would be worth a closer examination.
In terms of this market in particular, Santoli agrees that traders would rather focus on risks than bigger and better opportunities down the road. When that happens you get a reaction to news just like the one we saw yesterday.