Move over Freddy Krueger, because you've got company. The nightmare came to Wall Street on Friday, with the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) logging its worst day since Donald Trump took office. The Dow wound up falling 666 points, which registers as the sixth-worst point decline in the nearly 122-year history of the index.
By day's end, according to data from BarChart.com, 91% of the companies listed on the New York Stock Exchange had declined, compared to a meager 8% that moved higher. If you want to point your finger, blame it predominantly on the "tech wreck" and simple profit-taking following a powerful rally to begin the year. Names like Apple (which is a Dow component) and Alphabet, the parent of Google and YouTube, failed to impress Wall Street with their operating results and/or guidance, sending the market, and Dow, tumbling.
Image source: Getty Images.
Putting the Dow's 666-point plunge into perspective
But if we were to take a step back and look at the bigger picture, today's "plunge" was really quite pedestrian.
Since its formation in May 1896, the Dow's 20 worst percentage declines in history have ranged from a maximum of 22.61% on Black Monday in October 1987, to its 20th-largest percentage decline of 6.98% on Sept. 29, 2008, during the height of the Great Recession. Friday's decline in the Dow represented a mere 2.54% pullback in the index.
Let's put this into even more perspective. In order for the Dow to have had one of its worst percentage days ever (i.e., get into the top 20 of all time), it would have needed to drop by 1,828 points, or an additional 1,162 points from where it ended on Friday, Feb. 2.
Table by author. Data source: Wikipedia, The Wall Street Journal, Dow Jones. Data through 2016.
Similarly, while today's 666-point drop dwarfed the 508-point decline on Black Monday back in 1987, we have to remember that the Dow has increased more than tenfold in three-plus decades. Thus, that 508-point shellacking in October 1987 would be equivalent to the Dow losing 5,921 points in a single day in 2018 terms. The Dow wasn't even remotely close to that level today.
Three things to do right now
So, what should investors be doing following the Dow's supposed "plunge"?
First, investors should take a step back, breathe, and realize that down days and corrections are perfectly normal for the stock market. According to Yardeni Research, the broad-based S&P 500 (SNPINDEX: ^GSPC) has undergone 35 corrections of at least 10%, when rounded to the nearest whole number, since 1950. That works out to one correction roughly every two years -- and we haven't seen a correction in the major indexes since January 2016.