Last week’s meltdown in the stock market was ugly. There’s no denying it. The market doesn’t like uncertainty, and there’s plenty of uncertainty about the coronavirus.
Be that as it may, some financial news stories made the drop sound worse than it actually was. Let’s look at a few of them.
Not so fast, CNBC. It took the Dow four days to exceed a 10% loss last week. The Dow has fallen more than 10% in a single day three times, including a 22.61% loss on October 19, 1987.
The Dow set a new record by dropping over 1,100 points in a day. This was all over the financial media.
While true, measuring a fall in points is, well, pointless. The Dow only lost 38 points on the infamous “Black Monday” in 1929. But the Dow’s value was only 299 before that crash. A 38 point drop meant it fell almost 13% that day.
The Dow’s worst day last week was Thursday when it fell 4.42%. That’s a big fall, but it’s not even close to making the Top 20 list for largest daily percentage losses.
Over time, the values of stock indexes grow. Comparing a point drop in 2020 to a drop in 2002 or 1973 is meaningless. All comparisons should be in percentages.
It’s anyone’s guess what will happen with coronavirus or the markets next week. The only thing we know is that markets, at least in the U.S., have always recovered from crisis events.
This includes wars, terrorist attacks, major financial panics and the 1918 influenza pandemic which killed 50 million people worldwide and around 675,000 in the U.S. Today’s markets may more at risk due to supply chain disruptions, but it’s too early to assess how long or serious these will be.