A trillion-dollar swing in the stock market isn't what it used to be

  • By Allan Sloan,
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Stories on the stock market have been full of big numbers lately — especially big down numbers, like the 799 points the Dow (.DJI) dropped Tuesday, the 784 points it fell Thursday (before clawing back more than 700 of them) and the 559 points it fell Friday.

No, I can’t tell you where the market is going — would that I knew. But what I can do is help you put things in perspective. That’s important, because obsessing over big numerical swings (and the endless commentaries purporting to explain why stocks are rising or falling at a given moment) can make you more scared (or more upbeat) than you probably should be.

Let me explain, or try to explain.

In the past two months alone, the Dow has closed at least 500 points higher or lower no fewer than 11 times. On two of those days, the Wilshire 5000 total stock-market index (.W5000) has moved by a once unimaginable $1 trillion. That’s trillion, with a T. That’s how much the Wilshire fell on Tuesday.

But you know what, folks? Swings of 500 Dow points or a trillion dollars of market value ain’t what they used to be. How so? Because the stock market is so much higher than it once was.

Here’s the deal. The first time the Dow Jones industrial average, founded in 1896, had a 500-point move was on Oct. 19, 1987. The Dow’s 508-point drop that day was a terrifying 22.6 percent decline.

At Friday’s market close, such a move would be less than a tenth of that — a tad over 2 percent.

When the Wilshire, founded in 1974, had its first trillion-dollar one-day move on Sept. 29, 2008, its $1.2 trillion loss was an 8.3 percent drop.

These days, that would be about a 3.4 percent drop. A lot of money, but a lot less scary in percentage terms than it was 10 years ago.

Look, I’m not telling you that things are great in the stock market, or that 500-point Dow moves or trillion-dollar Wilshire moves don’t involve serious money.

It’s just that as a percentage — which is how you should look at this stuff — these moves are not remotely as dramatic as they used to be.

At closing prices as of Dec. 1, a 500-point Dow move was a change of 1.94 percent, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. The Dow has moved at least that much no fewer than 2,044 times, Silverblatt says. That works out to about once every 16 trading days — not exactly a rarity.

(A factoid for the quantitative analysts among us: A whopping 45 percent of the 500-point moves — 18 of 40 — in the Dow’s 122-year history have come this year. And we’ve still got three weeks to go.)

The Wilshire has had four trillion-dollar-move days this year, according to Robert Waid, a Wilshire Associates managing director. However, those moves were all below 4 percent, he says. By contrast, changes on the Wilshire’s five pre-2018 trillion-dollar-move days ranged from 7.1 to 11.4 percent.

Sure, a 500-point Dow day attracts a lot of attention. After all, what news medium can resist talking about that kind of move? The answer is: none.

Now, let’s take a deep breath.

As I noted in a Nov. 9 column about market whiplash, it hasn’t been all that long since U.S. stocks were soaring. From Aug. 29 through Oct. 3, the four main market indicators — the Dow, the Wilshire, the Standard & Poor’s 500-stock index (.SPX) and the Nasdaq composite index (.IXIC) — hit their all-time highs. The financial world was full of optimism that this would continue.

But by Halloween, stocks’ gains for the year had been wiped out. Stocks rose nicely in early November, but they started to tank a month ago.

Things were especially whiplashy this week. On Monday, when President Trump gushed about his meeting with Chinese leader Xi Jinping at the Group of 20 summit in Argentina (without providing any meaningful details), the Dow rose about 300 points.

When Trump did his “tariff man” act threatening China on Tuesday, the Dow fell by the aforementioned 799 points. And it fell almost that much (784 points) in early trading Thursday, despite Trump’s optimistic tweets Wednesday in what I suspect was an attempt to talk up the markets. (Markets were closed Wednesday for the funeral of former president George H.W. Bush.)

More than 700 points of the early Thursday loss disappeared by the time the market closed, then came Friday’s swoon.

Talk about whiplash! You had a big rise Monday, a big drop Tuesday, a big drop followed by a big recovery Thursday and a big drop Friday.

I’ll spare you my thoughts on why markets have gotten so whiplashy, which I discussed a month ago, or why it is that in October, rising rates on long-term Treasury securities were supposedly a major cause of the market’s drop, while recent declines in those rates are also supposedly bad for stocks. (For details, ask a market maven about “yield inversions.”)

The bottom line: Given the wide and unpredictable swings we’re seeing these days and are likely to continue to see, you probably shouldn’t have much of your money (if any) in stocks if you don’t have the financial staying power and a strong enough stomach to wait out market declines. And please remember that a 500-point Dow move is just a number — and a much less meaningful one than it used to be.

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