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What on earth is going on with the ASX?

What on earth is going on with the ASX?

Yesterday, it was down as much as 2.3% and ended the session 2.1% lower. Then today, it’s up more than 1% in what is proving to be something of a relief rally.

That right there appears to sum up the last month or so for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), which has served up some of the most agonising and most spectacular performances in recent memory.

To demonstrate, the session on 24 August – which was exactly one month ago – will go down in the history books as ‘Black Monday’. The market plunged 4.1% in what was its biggest one-day fall since the Global Financial Crisis. The very next day, it fell a further 1.5% before ending the day 2.7% higher — a remarkable 4.2% turnaround.

In fact, the ASX 200 has moved in excess of 1% in either direction in 14 of the last 24 sessions (including today). On six occasions, it has risen more than 1% while it has fallen more than 1% eight times. When we ignore the direction the market moved in (whether it ended the day higher or lower), the index moved an average of 0.5% in each of the remaining 10 sessions.

All in all, the market has shed 3.2% of its value during that time.

So what’s actually causing this volatility?

Unfortunately, there are a number of factors causing the lumpiness on the ASX, creating what seems to be a perfect storm.

To begin with, investors were anxious about the US Federal Reserve increasing interest rates; only to then be concerned why it chose to not increase interest rates. Notably, the Fed said it didn’t want to increase interest rates just yet in case such a move created too much instability in the global economy.

Then, there’s the concern about China’s growth prospects, and the impact a slowdown could have on our mining sector and the Australian as a whole.

Indeed, some of the country’s biggest and most widely held companies have been hit especially hard which has made the losses difficult for investors to avoid. Telstra Corporation Ltd (ASX: TLS), for instance, is down 6.3% while BHP Billiton Limited (ASX: BHP) is down 7.1%.

These factors, amongst others, are making investors extremely nervous with many jumping out of the sharemarket for fear of further declines.

Should investors panic?

As scary as these periods of extreme unpredictability can be, it’s important for investors to realise that volatility is a normal part of investing. But as The Australian Financial Review highlighted earlier in the week, this high level of volatility is not normal, meaning we can expect smoother sailing in the future.

The best thing for investors to do until that happens is to remain calm and keep their emotions in check. It’s by no means easy, and the temptation is often there to sell impulsively, but those are the investors who end up losing money by locking in losses at the most inopportune times.

While it could be argued that now is the best time to be loading up on stocks – while others are running terrified – investors can still do well in the long-run by simply sitting on their hands, and doing nothing.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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