Dollars and Sense: The stock market roller coaster isn't as scary as it looks

Volatility returns. In the past three weeks, the Dow dropped more than 500 points. That’s not a huge amount in percentage terms—about 3 percent. But last Thursday, the Dow plunged more than 300 points. On Wednesday it rose more than 200 points. On Tuesday it dropped more than 200 points. The size of these daily swings is what’s getting everyone’s attention. The markets hate uncertainty, and it’s been getting a lot of uncertainty in the past few weeks. The pro-democracy protests in Hong Kong, the continued unrest in Ukraine, and the Ebola epidemic are just a few of the global events causing market jitters.

Teutonic shift. Also capturing headlines last week: Germany, which is normally strong, had some troubling news. Germany is the eurozone’s largest economy. On Tuesday it said August industrial production fell 4 percent when compared to July, much worse than expectations. That weak report followed Monday’s soft reading on German factory orders in August. Adding to the gloominess was a report by the International Monetary Fund (IMF) that said global growth would be 3.3 percent in 2014, a downward revision from previous estimates. It also cut its 2015 forecast. Even so, the IMF upgraded its U.S. growth forecasts for both 2014 and 2015.

What, me worry? So should we be concerned by these sudden and significant daily swings in the markets? I think the answer to that question is “no.” A 200-point drop is not an everyday occurrence, and historically a 300-point drop has been rare. But the largest one-day drop in the Dow came on Sept. 29, 2008, when it fell 777 points, so last week’s swings didn’t even come close to top 100 daily moves of all time. We also need to remember that the Dow has almost tripled in value since 2008. So in percentage terms, last week’s moves were even less significant.

The week ahead. We’re now into third-quarter earnings season. Alcoa, which kicked off earnings season last week, posted results that significantly beat expectations. That’s one reason why it’s important to take a deep breath and not get too excited by these 200- and 300-point drops in the Dow. That’s especially true if we see other companies posting earnings as strong as Alcoa’s. Aside from earnings, it’s a pretty big week for economic reports. The one analysts will likely pay the most attention to is the September retail sales report from the Commerce Department, out on Wednesday. Aside from the monthly unemployment report, this is probably the most important economic report of the month: As retail goes, so goes the economy.