Ugly August – Healthy or One for History?

By Justin Bolmgren

For the past couple years, our Partners at Bolmgren RetirePLAN have been very worried that the Markets* have not had an official correction since the latest recession in 2009.  Stock prices have been propped up by government stimulus and high optimism.  A correction or bear market, broadly defined, is a decrease in stock prices from highs of 10% or more.  The recent global market selloff is the result of a knee jerk reaction to China’s devaluation of their currency and slowdown in the world’s second largest economy.  What China will do, if anything, to stabilize their markets is yet to be seen.  Obviously, other interrelated factors are involved in the sharp losses.

The past couple days in the markets have been down big and today will, likely, be just as bad as we officially enter “correction” territory.   And perhaps, this may be one for history.  The chart below shows the 10 largest single day losses in the Dow sorted by percent change.

  # Date              Close        Net Change    % Change

1987-10-19       1,738.74      −508.00          −22.61

2008-10-15      8,577.91      −733.08           −7.87

2008-12-01      8,149.09      −679.95           −7.70

2008-10-09     8,579.19       −678.91           −7.33

1997-10-27       7,161.14        −554.26          −7.18

2001-09-17     8,920.70       −684.81          −7.13

2008-09-29    10,365.45     −777.68          −6.98

1998-08-31     7,539.06        −512.62          −6.37

2008-10-22    8,519.21         −514.45          −5.69

2000-04-14   10,305.78      −617.77          −5.66

As we’ve seen by the chart above, many investors have gone through some difficult market storms in their lifetimes.  In 2008 for example, the markets posted half of our current "top ten" list.  Though there seems to be no end in sight to the panic (at the time this article was written), we expect China to intervene to calm markets sometime this week.  A market correction is always painful but is often a healthy prescription for a sick market. 

*Markets defined as Major U.S. Stock market indexes; Dow Jones Industrial Average and S&P500.  Investors cannot invest directly in an index.
# Source: Wikipedia: https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average