The sky may be falling on Wall St., but fortunately we have the 20/20 hindsight that Chicken Little didn't have and know that it will rise again. How do we know? We know because it always has. However, this knowledge doesn't help deflect the fact that the Dow Jones Industrial Average is down more than 5% in recent trading sessions, dragging down the S&P 500 and the Nasdaq, as well. While the DJIA fell more than 1,800 points between this past Friday and Monday, the largest two-day point drops in the history of such records, this has not been the largest percentage fall for stocks in the modern era.

On Black Monday October 9 (EST) 1987, stocks actually fell over 22% in one trading session.

Stocks fall the most points in history

Putting things in perspective can be of little solace if you needed your equity invested money for near-term expenses (which should not have been in the Stock Market in the first place). On the other hand, some rationalizing is in order. The stock market as measured by the DJIA or the S&P 500 index, had risen over 30% and 24% respectively over the last year, before this past week's declines of roughly 4.5%. As the numbers get larger, the percentages get smaller you might say. And, although at one point on Monday the DJIA had plummeted 1,600 points intra-day, no, Chicken Little, the sky wasn't falling.

What goes up must come down...and then go up again

The fact is the U.S. equity market is well documented to provide historical returns of between 7- 10% annually (depending on tax bracket and inflation). According to Morningstar.com, the DJIA provided returns of 14.6% &15.2% over the last 3 and 5 years respectively.

The more relevant S&P 500 returned 11.75% and 14.62% over those same terms. It was time for the market to pull back. The only question was exactly when it would happen.

A few of the reasons for "the numbers" getting larger, mentioned above, are:

  • Increased accessibility to equity investing and trading by individuals, including the exclusively electronically traded NASDAQ stocks
  • The advent of 24/5 trading of most major international stocks and derivatives
  • The increasingly large investments devoted to passive investing in ETF's and mutual funds mimicking the various stock indices.

This "passive investing" trend attracts larger pools of money from individual employees' 401k accounts and is expected to continue in equity investing as it makes taking part in the overall markets more accessible to millions of U.S.

consumers. Combined with the limited places for investors to put their cash to work and the overall strength of the world economy, not the "Trump' effect," the stock market will bounce back in the moderate term.

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