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There was a time when a 7% drop in the stock market in three days would have been a big deal. Now . . . meh.
The stock market peeked last Wednesday and then over the next three trading days promptly fell 7% (and then yesterday recovered about 2%). You’d think that should be notable, but it really doesn’t seem like that.
Why a 7% drop isn’t a big deal
First, this has been a crazy year anyway, so a drop like this just seems like par for the course. In fact, I think that speaks to how crazy things have been that we’re now numb to it.
A 7% drop is actually a pretty big deal. Since 1940 (I didn’t want to include the Great Depression where there were a lot of crazy drops), there have been 28 three-day drops that bad or worse. Is that a lot or not too much?
28 times in 70 years means it averages once every three years or so. That doesn’t seem too crazy. As it happens, we had two such periods in 2020, once in February and again in March. That’s probably not very surprising giving the total stock market meltdown we experienced then. Before that you have to go back to 2015 and before that 2011. That seems to line up with our average; this happens every few years.
But the difference is when this happened before in 2015 and 2011, it seems like we made a big deal of it. Everyone, Stocky included, talked about it a lot, tried to figure out what caused it, and predicted when things would turn around.
This time it just seemed like another couple days. Personally, I think after surviving the Corona stock market, we just expect this now. Down 4% in one day, whatever?!?!? My, oh, my, how far we’ve come (or how far we’ve fallen).
The other thing that made this drop not so bad is it seemed like we were just giving back the gains we made over the previous couple weeks. We lost a lot, but it felt like we just gave back the house money we won a few weeks earlier.
The fall erased the gains we experienced since mid-August. That doesn’t seem like all that big of a deal. Easy come, easy go.
Crazy stock moves is just how 2020 rolls
Nothing about 2020 can really surprise us any more, but how does 2020 stack up to other years. So far, we’ve had major stock market moves (up or down at least 1%) 46% of the time. Nearly half the days have seen the stock market move dramatically—think up or down about 280 points for the Dow Jones.
That happens every once in a while, but what really makes 2020 crazy is that 16% of the days have had CRAZY major stock moves (up or down at least 3%–about 800 points for the Dow Jones). That’s the one that seems remarkable. That means almost once a week, we’re seeing something crazy happen. Wow that’s exhausting.
Historically, 2008 had that many crazy big days (the Great Recession). Before that you have to go all the way back to 1933 and the Great Depression. That puts things in perspective. What we’re going through is crazy, but it definitely feels that we’ve just accepted a heightened level of crazy as our new normal. Sigh.
As always, I remain fully invested and optimistic about the market. I guess I just need to keep some Pepto close at hand.