On Friday, the Dow plunged more than 530 points and it started Monday, by plummeting 1,000 points. The fear is that China’s economy is slowing, yet Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, is frustrated by the reaction.
“I think that what China has done with its currency, which seemed to trigger a lot of the recent market volatility is a very prudent thing for them to do, in the long term, and will actually be very beneficial to global growth. But yet the short term market reaction is in the complete opposite direction of where I think that it should be. So it either tells tells me that I'm seeing something or I'm not understanding something that the market is seeing, or that the market is just being very emotional at the moment," Jacobsen says.
Jacobsen says this is also the time of year when the market sees slightly different trading patterns because a lot of people are using up remaining summer vacation days. So it can actually be a bad time of year for investors, in general, who want to trade.
"In talking to people who are out in New York, a lot of the people who are staffing the trading desks, they might be having their colleagues staffing for them.
"The volume of trading is a little bit lower as well or is just more sporadic, which suggests to me that a lot of the trading that's taking place that's being reflected in the prices is driven more by algorithms than it is by individuals making conscious decisions based on the fundamentals."
Jacobsen says algorithms - or programming computers to executive trades based on simple instructions, can sometimes cause outsized movements in the market.
When it comes to fears about China's economy slowing, Jacobsen says investors are wondering whether the slowdown is temporary and worrying that the deceleration is occurring faster than Chinese policy makers can control.
The effect, among stocks of American companies such as Apple, General Electric and General Motors - companies that export to China and have had high growth aspirations there, Jacobsen says, is that they "may have to adjust those expectations now that China is beginning to slow down maybe a little bit faster than what people were expecting."
As for publicly-traded Wisconsin companies that do business in China, Jacobsen says it is a relatively small set of firms, such as Rockwell Automation, Johnson Controls and Caterpillar.
"A lot of their growth over the last few years has seemed to come from the emerging markets and probably from China especially, and so it can have a bit of an outsized influence on those companies' stocks, if suddenly China is shifting into a slightly slower gear," Jacobsen says.
Jacobsen says investing in companies, means taking risks and sometimes going on a wild ride. His advice is to diversify investments and 'hang on.'
"You have to accept that you can get 10% to 15% movements in stock prices for no real apparent reason and that's why you have to be willing to be not only diversified with your portfolio but patient because sometimes, over the course of a few days or even months, things can go in very weird directions," Jacobsen says.