As you are no doubt aware, last week was a wild one in the stock market. The Dow Jones Industrial Average, the index most widely quoted in the media, fell about 5% over two days before eventually ending the week on a positive note. The index ultimately declined a little over 4% for the week.
Other indexes did worse while some fared better. The index for small company stocks, which had been on a bit of a run lately, dropped over 5% last week. Emerging markets, the worst performing asset class this year, did better, only dropping about 2%. Bonds, which had been lagging all year, largely did their job and held their value, increasing a fraction for the week. In short, returns were all over the place while being generally negative.
I've mentioned before how so much of successful long-term investing is counterintuitive. Well, this is another perfect example. During times of market volatility, it's easy to get caught up in the emotion of seeing prices fall and thinking you have to do something. The irony is that it's often best to do nothing, or at least nothing rash.
What are some things to do when volatility spikes? Rebalance if needed, "harvest" some losses if reasonable, confirm your holdings are of good quality and in the right proportion, and generally stick to your plan. You know, the boring stuff.
But why did the markets suddenly get volatile last week, and so far this month in general? The following note from JPMorgan lays it out better than I can. The note also suggests (and I agree) that this is probably a short-term volatility spike and should serve as a reminder to stay calm and be well diversified.