Suddenly the stock market is a wild place again.
Stocks enjoyed a long steady rise after President Donald Trump’s election in November 2016, but in the past week they suddenly began zigzagging sharply.
The Dow Jones industrial average fell nearly 666 points on Friday, and another 1,175 on Monday.
Then, after falling of more than 500 points when regular trading opened Tuesday morning, the Dow seesawed through the day before finally closing for a gain of 567.
Experts on Long Island and beyond said it may take a weeks or months for the market to stabilize; that stock declines alone may not have much effect on the local economy, and the accompanying rise in interest rates could eventually affect Long Island real estate.
Here are experts’ answers to some key questions about the market’s wild swings and their impact:
Q. Why has the market suddenly become so volatile?
After a long period of low interest rates and inflation, both have begun to rise, experts said.
“What changed last week was the interest rate scenario,” said Mitchell Goldberg, president of ClientFirst Strategy Inc., a Melville investment adviser. One of the factors behind rising rates was higher expectations for inflation, fed by a strong report on national wage growth on Friday.
Q. Did stock prices run ahead of economic fundamentals?
Some experts think so. “Investor enthusiasm for the passage of corporate tax cuts [and other factors] got too exuberant,” said Barry Ritholtz, chairman and chief investment officer of Manhattan-based Ritholtz Wealth Management LLC. “In the past four months we’ve gained 14 percent. That’s just too far too fast.”
Q. How unusual is the recent stock market volatility?
Actually it’s normal for stocks to zig and zag.
“The real anomaly is how the market has been marching higher in the 14 months since the presidential election,” said Mike Desepoli, vice president of Heritage Financial Advisory Group in Port Jefferson Station.
Q. How long will the market swings last?
Experts differ. “We think it will take seven to 10 days to run its course,” Desepoli said.
It may take longer to resume rising. “Sometimes markets go sideways to digest their gains,” Ritholtz said. “It would not be a bad thing for the market to take a pause.”
Q. Does increased computerized trading — often called “algorithmic trading” due to the rules directing the computers’ trading activity — affect the stock market?
“The continued increase in algorithmic trading has the potential to increase and accelerate volatility, as has been clearly demonstrated over the past few sessions,” said Robert Goldberg, professor of accounting, finance and economics at Adelphi University.
Q. How will the stock market affect Long Island’s economy?
“I don’t see this as anything that’s going to be bad for the economy in the midterm,” said John A. Rizzo, chief economist for the Long Island Association business group and a Stony Brook University professor. “The real economy is very strong; unemployment is low, business conditions are good, consumer confidence is good.”
However, David Vitt, an economist at Farmingdale State College, said that “consumers may pull back on big-ticket purchases of homes and car because of uncertainty about the future.”
Q. Could Long Island home sales eventually be affected?
Rising interest rates could “cool demand for housing,” Vitt said.
The average rate on 30-year fixed mortgages rose to 4.22 percent on Feb. 1 from 3.95 percent Jan. 4, according to mortgage giant Freddie Mac.
Economist Rizzo called rising rates “a headwind for the local real estate sector.”
Q. Has real estate been affected yet?
Not yet. For every $100,000 borrowed, even a ½-point uptick in the interest rate translates into only about a $30-per-month increase in monthly payments, a Bankrate.com calculator shows.
That’s not enough to sway most purchasers, said Bob Moulton, president of Americana Mortgage Group in Manhasset.
“It hasn’t seemed to have affected the house-buying market,” Moulton said.
With Maura McDermott