The Worst Stock Market Drop in History? Should You Panic Yet?

Tuesday saw the most volatility the stock market has seen in over a year.

The Dow Jones Industrial Average, which tracks 30 of the largest companies in the US, dropped 1,175 points, triggering a global sell-off.

While this was the largest point drop in history, as a percentage, it was “only” 4.8%.

The actual worst drop in history was on Black Monday – 19th October 1987, when the DOW dropped an eye-popping 22.6% in one day.

But coupled with the 1,800 point loss from the past week, the DOW and the S&p500 are now down about 8% from their highs, and down for the year.

Understandably, this has caused some panic.

But for most investors, it’s isn’t time to worry yet.

The past year has been the least volatile on record. The S&P500 hadn’t had two days with 2% percent decline since September 2016. This is a rarity we haven’t experienced in decades.

As I mentioned in September 2016, “I expect the economy will keep grinding higher for the next few years, just like it has been for the last five. And like the economy, our investments will likely slowly grind higher as well…”

And since then, the market has kept steadily grinding higher, rising without actually moving more than 1 percent in either direction.

Until last week, the S&P 500 gained 14% over a five month period without experiencing a single 1% up day.

This has never happened before.

While it’s true that we’ve recently seen a lot of positive economic news to propel the markets higher and maybe even justify these prices, the fact is that prices have simply gone up to quickly.

It’s time for the market to slow down and digest it’s gains.

You might be worried that we’re reaching the end of this bull market. And we may well be in the final innings, but I think we still have quite some room to run before the next recession rears it’s head. And if history is any guide, we’re unlikely to see the end of this bull without a recession.

If anything, today’s action just signals that the low-volatility period is over and the market has now returned to it’s normal behavior.

There’s really nothing to see here, and even less to do…apart from rebalancing your portfolios.

As usual, stick to your investment process and control the things you can actually influence – risk, cost, time and behavior.

Happy Investing!

Nirav
PS: If you’d like to discuss your investment performance, retirement plans, or you’d like a complimentary portfolio review, send me an email and we’ll schedule a time to talk.