Wealth Manager: Consider Stock Market Activity In Context Barry Ritholtz, chief investment officer of Ritholtz Wealth Management, says Monday's stock market drop was bad but "really isn't terrible" when compared to other big stock market plunges.
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Wealth Manager: Consider Stock Market Activity In Context

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Wealth Manager: Consider Stock Market Activity In Context

Wealth Manager: Consider Stock Market Activity In Context

Wealth Manager: Consider Stock Market Activity In Context

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Barry Ritholtz, chief investment officer of Ritholtz Wealth Management, says Monday's stock market drop was bad but "really isn't terrible" when compared to other big stock market plunges.

RACHEL MARTIN, HOST:

U.S. stock markets are open this morning, and things are volatile. Markets are moving in and out of positive territory. We are joined now by financial columnist Barry Ritholtz. He writes for Bloomberg View and is the chairman and chief investment officer at Ritholtz Wealth Management firm. Thanks so much for being with us this morning.

BARRY RITHOLTZ: Thanks for having me.

MARTIN: So we are of course talking because it has been a rollercoaster over the past couple of days. Yesterday was the single largest point drop in stock market history. What's going on? How are you reading this?

RITHOLTZ: So let's put all of this in a little bit of broader context. Yes, yesterday was the largest single point drop. But you have to recognize this in percentage terms because when the markets fell, the most they ever fell, in 1987, in one day, 22 percent, it was about 600 points. So this turned out to be the 108th worst single day. That's bad, but it really isn't terrible compared to what it could be. If yesterday looked like 1987, we would've been down closer to 6,000 or 7,000 or points, not a thousand points.

MARTIN: Right. There's so much more trading that happens. It's so much larger.

RITHOLTZ: And everything is worth so much more. Here it is, it's 30 years later. Obviously things have a much higher valuation than they did way back when.

MARTIN: So what do you tell people, nervous investors, who look at this and they know that they're supposed to not panic but it's still hard when you see this kind of fluctuation?

RITHOLTZ: Sure. Well, you have to put this in a little bit of context. Over the past almost 10 years, the market has tripled. Over the past year and a half, it's up over a third. And, shockingly, over the past four months, this market has gained more than 14 percent. Now, for a little bit of context, the average market gains for any given year over the past century have been between 8 and 10 percents with dividends. So when you're up almost 50 percent more than that in a fraction of a year, that's just a case of too far, too fast.

I think the enthusiasm over the tax cuts, the expectations of continued profits from corporations around the world and the economic recovery that is not just in the United States but we're seeing it in Europe, we're seeing in Japan, we're seeing it in emerging markets, people just kind of got way too excited about this. And the market is coming back to trend, coming back to where it should be.

MARTIN: And so overall, the economic fundamentals are still good, right? Low unemployment, rising wages. So those are good indicators.

RITHOLTZ: You know, a lot of the bond traders have been suggesting that because the economy has gotten as good as it has, it means that these years of low-cost, easy money, very, very low rates, that's good for corporate profits, that's good for mortgages - anyone who wants to go buy a house, rates are still cheap.

MARTIN: Yeah.

RITHOLTZ: That actually has caused people to get a little nervous - hey, maybe we're no longer in the Goldilocks zone. Maybe the Fed is going to take rates up, and things are going to become a little more pricey.

MARTIN: Things go down. Financial markets columnist Barry Ritholtz, chairman of Ritholtz Wealth Management, thanks for your time this morning.

RITHOLTZ: My pleasure.

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