It's Back! Stocks Take Another Bath

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Welcome back, panic! After a few days off, it's back: The Dow fell more than 500 points this morning, and 10-year Treasury rates hit an all-time low below 2%. (On that note, if you're one of those willing to lend money to the government for a decade at less than 2%, shoot me an email. We need to talk.)

What's driving the sell-off?

Standard caveat: Who knows. Markets do crazy things. More than 60% of total volume is done by high-frequency computer trading operating off of brainless algorithms.

But a few things stick out.

The past two weeks have understandably shaken confidence. Mutual fund outflows last week hit levels not seen since late 2008 -- although ETF inflows likely offset those figures. Fund giant Fidelity says its customer call volume spiked 50% last week. TDAMERITRADE (NAS: AMTD) says it processed more than 900,000 trades last Monday, with four out of five days last week hitting record levels of trading activity. Many were buying. But if the market is any guide, plenty were panicking.

Panicking over what? The worry du jour is that we're heading into a new recession. This morning, the Philadelphia Federal Reserve released a gauge of manufacting activity now at its lowest level since March 2009:

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Source: Philadelphia Fed.

Does this guarantee a recession? No. But it's unmistakable that the economy has slowed in recent months.

Still, don't let any of this push you into panic. As my colleague Todd Wenning said this morning, "Some might see a Bloomberg machine flashing red as a 'panic' sign, but Fools should see it as a 'For Sale' sign."

It can't be repeated enough: The best returns are made during the darkest days. If you wait for the economy to get better, or for markets to "calm down," you'll miss the biggest returns. It's always worked that way. This too will pass, and those with a patient, long-term outlook will win. On the bright side, we're 500 points closer to the bottom than we were yesterday.

What do you think about these wild market days? Sound off below.

At the time this article was published Fool contributorMorgan Houseldoesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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