Yesterday, fears over the impending impact of coronavirus caused the stock market to have its worst day since 2008. It was the latest blow in a market that, fueled by coronavirus fears (and more recently, anxieties over treasury yields and oil prices), has veered downward from a February high towards bull-market territory, and despite President Donald Trump’s promise of some sort of economic stimulus, the market struggled to bounce back during today’s trading session. Tomorrow, banking executives will meet at the White House, presumably to work out a plan that keeps them from going under even if we all get sick.
This downturn was bound to happen; it was just a matter of when. Generally, as the stock market gets higher and higher, people get nervous because they know it can’t last forever. The trick, then, is cashing out at the top right before the market corrects itself. But when something crazy — say, a global pandemic that slows the movement of goods in the globalized economy, causes schools and universities to shut down, discourages people from taking planes and boats, and keeps workers home while depriving gig economy earners and contractors of the wages they need to save (and spend) — happens, everybody rushes to the exits.
In our heavily financialized economy, the prospect of coronavirus preventing us from going out in public could cut off the upward flow of capital from consumers to stockholders. If America reaches a point where people stop going out, either because the Center for Disease Control advises them to or simply because they’re freaked out, that lack of consumer spending might very well have a cascading effect, sending every corner of the economy into turmoil. Given that Trump has effectively staked his re-election on the stock market’s bull run, it makes sense that he would downplay the dangers of coronavirus and place blame for the market’s poor performance elsewhere. This is both shortsighted and genuinely dangerous, and might lead to him losing in November.
Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!— Donald J. Trump (@realDonaldTrump) March 9, 2020
But, you must be thinking, what about the stock market as it applies to Drew, the person who is writing this article, and whom I remember wrote a previous article about using the trading app Robinhood to manage his investments, rather than relying on more passive methods such as automated robo-advisors or traditional retirement plans? Thank you for asking!
Every few weeks, I move some money into Robinhood, the seven year-old mobile investment platform which earned its 10 million users and $7.6 billion valuation through being the first company to realize if you let people trade stocks for free through an aesthetically pleasing, easy-to-use interface, venture capital companies will give you lots of money. I then use that money to buy a share of a broad index fund, attempting to maintain a diverse portfolio based on misremembered advice that my dad, a retired financial advisor, gave me when I was a teenager. While the market was overachieving and continually eclipsing its record highs, as long as I followed the vague strategy I had set up for myself, there was literally nothing I could do to not make money, even if all my tinkering did cause my portfolio to underperform compared to the overall stock market. I like Robinhood because it allows me to trade as much as I want, with no fees and at my own pace, and this makes me feel like a grown up.
But now that things are rather less rosy in the market, it’s becoming clear to me that Robinhood’s ease of use is a double-edged sword. When combined with my lack of investment savvy, it’s basically a single-edged sword (the shitty edge). I spent all of yesterday buried in work, and by the time I got around to checking the news and saw that the stock market had shot downward, the markets had closed and my Robinhood portfolio was a mess. In a panic last night, I sold some of the worst-performing index funds in my portfolio once trading resumed this morning, but this just caused me to lose out on today’s vaguely upward lilt.
Other Robinhood users, however, have been around to watch the damage in real-time. So many, in fact, that a sudden rush of activity on the platform led to its third crash in eight days, meaning that users weren’t able to react to the mass sell-off by exiting their positions or investing in bonds or short options. Instead, they just had to sit there.
The app also experienced mysterious outages last week, causing the company to post a note on its blog, saying, “The outages you have experienced over the last two days are not acceptable.” The post continued, “Multiple factors contributed to the unprecedented load that ultimately led to the outages. The factors included, among others, highly volatile and historic market conditions; record volume; and record account sign-ups.” Though Robinhood claimed to have resolved the issue, in a statement to sent to media yesterday afternoon it yet again cited “these historic and volatile market conditions.”
It’s unclear how Robinhood’s outage affected yesterday’s market slide, but given that the vast majority of its users are small-time investors such as myself, it most likely had little effect beyond maybe contributing to a general sense that the sky was falling down. However, its inability to actually function when its users need it most points to a greater issue with the stock market, which is that despite being one of the largest drivers of wealth in America, regular people are disconnected from it, both figuratively, and sometimes, as was the case yesterday, literally.
Robinhood, as well as a host of other personal financial technology products, has succeeded because of this idea that it’s actually fine that the economy is inextricably tied to the stock market, and that instead, the issue is simply one of access, that if people just had the tools they needed to get in on the action, then things would work themselves out. However, as the recent market slide has shown, being able to feel the crush of a market panic from the convenience of a smartphone app does nothing to protect regular people from the problems that got them there in the first place. Robinhood is really good at letting people make whatever trades they want to (when it works at least), and in the wrong hands — namely, mine — this can be a disaster. This entire experience has me wondering if I should cut my losses and move my money out of the market and back into my savings account, or at least into a service that doesn’t give me so much control over my tiny portfolio. But like somebody who keeps buying scratch-off tickets at the gas station in case today’s their lucky day, I might just leave a little money in there just in case.