Easy come, easy go. That’s how many investors are feeling after the rapid-fire series of market selloffs over the past few weeks.
The major averages all tumbled in the early minutes of trading on Wednesday morning, pushing the Dow Jones Industrial Average (^DJI) more than 1,000 points below the record high it set less than a month ago. It closed on Sept. 19 at 17,279.74. As stocks slumped again Wednesday morning, it was trading around 16,000.
Since it topped out last month, the Dow has suffered eight triple-digit losses, including drops of 223 points (Oct. 13), 238 points (Oct. 1), 272 points (Oct. 8), and 335 points (Oct. 9) — the biggest loss of the year. Add it all up, and the Dow has slid about 7½ percent from its peak, its biggest retreat in more than two years. It also means the Dow has now given back all of its gains for the year — and then some.
Decline Is Widespread
Many market pros like to point out that the Dow is not representative of the broader market, but the index remains the most widely followed shorthand for gauging the stock market’s performance. And, for those who prefer to follow broader market indexes, the patterns are similar. The S&P 500 (^GPSC) is also down about 7½ percent from its record high last month, and it’s just barely in positive territory for 2014. The Nasdaq Composite Index (^IXIC), which has not set a new record since the tech bubble burst in March 2000, has lost nearly 9 percent since its cyclical high last month. And the Russell 2000 (^RUT), an index of small-cap stocks, has slid more than 13 percent, putting it in correction territory. (A correction is usually defined as a drop of 10 percent or more from a recent high water mark.)
It’s not unusual for the market to swing wildly October. In fact, many of the biggest market tumbles of all time have occurred in what’s become known as the “jinx month,” including the crashes of 1929, 1987 and 1997. This weekend marks the 27th anniversary of the 1987 Crash, when the Dow suffered its worst single-day percentage loss ever, a head-spinning drop of 22.6 percent.
Many previous market declines can be linked to specific events, such as the financial collapse of 2008 or the tech bubble popping in 2000. But this downturn — which certainly does not qualify as a collapse — is not. Instead, a series of global events have steadily and cumulatively eroded investor confidence — among them, slowing economic growth in Europe and China, geopolitical unrest in the Middle East and Ukraine, and the rapidly expanding Ebola health crisis. In addition, investors remain on edge about when the Federal Reserve will begin to raise interest rates. The widespread view is that the central bank will do so by the middle of next year. It has not raised rates since 2006.
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