Don’t worry, this isn’t a real headline, yet.

Panic Attacks: An unfortunate feature of markets

The largest single-day percentage loss in the Dow Jones Industrial Average was Oct 19, 1987. The index dropped 22% on the infamous Black Monday, sending terror through global markets. There was seemingly no rhyme or reason for the pullback, besides (perhaps) too much investor enthusiasm that had pushed stocks up 40% before the crash.

The drop was 508 points, closing below 1,738 at the day’s end.

Numbers are bigger today than they used to be.

The Dow has lost twice that much (1,000 points or more) on fifteen different occasions since 2020. The “Highlight” was a loss of 2,997 points (nearly 13%) at the outset of the pandemic.

The product of big numbers is (usually) bigger numbers

Today the Dow sits over 44,000. It’s been a remarkable 30% rally over the past couple of years, gaining 11,000 points in the process.

However, a 10% pullback from here would result in a 4,400-point drop for the Dow. Thus, the (potential) headline preview.

Why did we illustrate a 10% drop?

10% drops (corrections) are all too frequent, (after all, we’ve had 51 of them since 1958). Sometimes they happen over hours, and sometimes over months. This post isn’t to scare anyone. But pullbacks are something all stock investors should be prepared to deal with.

All-time highs present an opportunity to reset your expectations

America is in the middle of a bull market, and stockholders have been rewarded. And if markets went straight up without drops, everyone would be a great investor. We know neither is the case.

So, the next time you turn on the TV and inevitably hear about the market losing hundreds or thousands of points, remember:

Market levels are high, so any percentage swing will result in a large point number.
Pullbacks happen for all sorts of reasons. But historically they have one thing in common: they’re temporary.