Volatility Rules the Day, but Bulls Get the Last Laugh

If there was any doubt that volatility now rules the market, today we got an answer.

If you didn't watch the market all day today, you could have missed the schizophrenic mood the market is in. A day after the Dow Jones Industrial Average fell more than 600 points, the index swung 640 points from low to high in just over an hour to close the day, ending 4% above yesterday's close. Over at the Nasdaq, stocks rocketed more than 5% higher to end the day.

As Vince Lombardi would say, "What the hell's going on out here?"

It all started with the Fed
Most of the volatility happened in a two-hour period, as the market tried to figure out exactly how to digest the Federal Reserve's latest policy statement. At first there was a feeling of "here we go again," as the Dow fell nearly 500 points just after 2 p.m. ET.

Maybe investors were disappointed that the Fed didn't announce any stimulus plans, but whatever got sellers excited, the drop was short-lived and buyers rushed the market. Stocks went up, oil ran higher, and even Treasuries screamed higher after the Fed gave a sure answer on where short-term rates were headed.

For the first time in recent memory, the Fed added a definitive time frame for low rates, saying they would remain where they are through "at least" mid-2013. With rates guaranteed to be low for two years, the two-year yield reached a record low of 0.17%. That's almost like keeping money in a tin can buried in the yard.

With diversified companies such as 3M (NYSE: MMM  ) and General Electric (NYSE: GE  ) sporting long-running dividends and paying investors more than Treasuries offer, we could see a move to these relatively safe stocks. I can't imagine that people will continue to flock to Treasuries with yields this low -- although crazier things have happened.

Banks are loving this
Some of the biggest beneficiaries today were banks, which traded dramatically higher by the end of the day. Bank of America (NYSE: BAC  ) led the way, climbing 17%, while Citigroup (NYSE: C  ) and Wells Fargo (NYSE: WFC  ) jumped 14% and 8%, respectively.

Low rates from the Fed means low borrowing costs for banks and should mean greater profits for investors.

If mortgage rates fall, as some are predicting, maybe we could even start to see a recovery in housing. Or maybe that's just wishful thinking.

Oil can't decide which way is up
On the downside (for a while), oil slid as much as 7% in the past 24 hours as investors worried about slow economic growth. After last week's anemic GDP numbers, the Fed said it expected slower growth, which should mean less demand for oil. That sent ExxonMobil (NYSE: XOM  ) into the No. 2 spot on the market-cap list behind Apple (Nasdaq: AAPL  ) for some of the day.

But oil and oil stocks rebounded like the rest of the market later in the day, as investors bought almost anything they could get their hands on.

Tune out the noise
What can we learn from a day like today? Turn down CNBC, be on the lookout for opportunities, and don't be afraid to act when the market is panicking the most. You might be rewarded on a day like today.

Since we can't predict the market's mood swings, Foolish investors would be wise to buy when a value presents itself and turn off the real-time ticker. This Fool was so focused looking for great values that I didn't have time to worry about what my stocks were doing on a minute-by-minute basis during the day. That may be the only way to stay sane in a market like this.

What was your reaction to today's market? Were you a buyer or a seller? Leave your thoughts in our comments section below.

Fool contributor Travis Hoium owns shares of 3M in a 401(k) plan. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Apple, Bank of America, and Wells Fargo, has opened a short position on Bank of America, and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Apple and 3M and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2011, at 9:22 PM, 123spot wrote:

    Bought BRK-B @#68, SO @37, NGG@47, WPRT@21,,AAPL@363 today when these stocks hit my buy price per my Watch List. Felt very happy at end of day, but who knows what tomorrow brings. I bought into my 1st 3rd in NGG, my third thirds in the others. Keep that Watch List updated and studied. Wonderfully useful tool. Thank you, MF (hmm..., meant as a compliment). Spot

  • Report this Comment On August 09, 2011, at 9:48 PM, TMFFlushDraw wrote:

    @123spot

    I was a big buyer today too. I opened positions in DIS, INTC and added to my Rule Breaker pick PACB.

    Great use of the Watchlist.

    Happy investing,

    Travis Hoium

  • Report this Comment On August 10, 2011, at 12:11 AM, jimmy4040 wrote:

    "Low rates from the Fed means low borrowing costs for banks and should mean greater profits for investors"

    That's only true IF they have a place to put the money. The yield curve has been flattening to a tremendous amount and so diminshing their profits, not expanding them.

  • Report this Comment On August 13, 2011, at 4:45 PM, DDHv wrote:

    My active watchlist is on a spreadsheet, and for the companies involved calculates a column of suggested buy prices and a column of suggested sell prices, arranged from best current buy to best current sell. Buy bids and sell bids use limit bids. Total buy bids depend on the available cash. August 8 & 9 triggered five buys at good prices, from near the best buy end of the list. Used up about half of my available cash. I'm replacing it by selling some of a preferred stock picked up earlier.

    My last spurt of sells occurred a few months back.

    Don't get mad at volatility, use it!

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