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Have Stock Investors Become Smarter?

Morningstar Research Vice President John Rekenthaler reckons that today's lower stock-market volatility has been caused by the economy, not by changing investor behavior

If the U.S. stock market were a white-water rafting trip, its participants would demand a refund. These days, even a 1% daily move by the Dow Jones Industrial Average is rare. Holding stocks is like tubing the American River: lazily drifting on a summer's day, all cares forgotten. I'm not sure how CNBC stays in business.

As Bloomberg's Matt Levine points out, this decline in market volatility could indicate that investors have become more rational. Robert Shiller won a Nobel Prize, in part, for showing that stock prices overreact.

Historically, even routine news often sends the market into a frenzy. Take this 6% weekly loss from January 2016. (What on earth were we thinking?) If stocks are calmer today, perhaps that is because their investors have become wiser.

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About Author

John Rekenthaler, CFA  John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

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