For the Best Perspective, Look at Percentages not Points
February 2, 2018
If you haven't seen the news already, the Dow Jones Industrial Average (the Dow) dropped 665 points today. That's a big number, and the media has already been playing this up.
Back in my younger days, a 665 point decline certainly would be big news: when I started in the industry 30 years ago the Dow was around 2100, so that would be a crash!
But the Dow closed today at 25,520, so in reality this was only a 2.5% drop. While 2%+ single-day declines have been relatively rare the past few years, drops of this magnitude are fairly common.
And also keep in mind that even after the loss today the Dow is still up 800 points this year, and 4700 points from one year ago!
The catalysts behind this decline were numerous:
- Interest rates have begun to rise, drawing some investment dollars from stocks to bonds
- Markets are concerned about the political fallout from the release of the "Nunes Memo" and the potential for instability in parts of the Federal government
- The market rose sharply and significantly last year, followed by a very strong January, so profit-taking can be equally as sharp and significant
While there is a natural tendency to want to "do something" in reaction to a day like this, your best move is most often to not make knee-jerk changes. This could be the start of a long-anticipated "correction" where the markets decline 10-15%, but with a strong economy and record low unemployment the conditions aren't there for a major bear market. Of course this is something I and our investment managers are always monitoring, but right now this appears to be more a case of the market giving back some of the rapid gains logged over the past 12-18 months.
Feel free to contact me if you have any questions or concerns about your financial situation, and I will as always share my thoughts and observations as we move forward.