Stock market swings in Dow are less dramatic than they used to be, experts say

The four biggest declines in the history of the Dow Jones Industrial Average, by points, have taken place this year.

Despite the supersized numbers, analysts and brokers said that, measured on a percentage basis, the Dow has seen far worse.

The 799-point fall on Dec. 4 was the index's fourth-worst drop ever in terms of points. But it was only a 3 percent decline — the 329th worst day the stock market has seen, according to statistics compiled by Barron’s. 

In comparison, the 733-point decline in the Dow on October 15, 2008, triggered by bad retail sales data, discouraging comments from Fed Chairman Ben Bernanke and a sense of impending financial crisis, represented a much steeper 7.9 percent tumble.

The worst single day for stocks on a percentage basis was in October 19, 1987, when shares fell 508 points due to problems stemming from computerized trading and worries about international markets and high stock prices. 

“The stock market dropped 23 percent in one day, and that would be like if the Dow fell 5,880 points in one day today,” said Jon L. Ten Haagen, a Huntington-based financial adviser.

The Dow Jones Industrial Average has long been the bellwether of Wall Street performance because 30 of the largest companies in the country are in it, and because of its ability to give historical context — it's been around for more than century, experts said, longer than the Standard & Poor's 500 index of 500 companies, which dates to 1957.

The stocks within the Dow Jones Industrial Average have changed through the years. For example, Walgreens Boots Alliance replaced General Electric this June. The stocks in the index are selected by S&P Dow Jones Indices, an index-based data and research consortium.

While the stock market's single-day moves this year haven't been the biggest on record, the decline since October nevertheless signals that there are economic concerns investors should be wary of, including the trade impasse with China, Brexit and the political climate in Washington, D.C.

On Friday, the Dow fell 497 points, a decline of 2 percent. The index is down 10 percent from its record high in early October, a level known on Wall Street as a "correction." 

The reason for the disconnect between percentages and points is that the Dow index is a much higher number today than it was in previous years, experts said. So seemingly large point moves actually translate into smaller investment gains or losses.

In fact, none of the 20 largest percentage drops in Dow history has taken place this year, according to to Euromoney Institutional Investor, a New York-based research firm.

On the upside, five of the nine largest daily point increases have also come in 2018. But none of the top 20 daily percentage increases is from this year.

In 2018, the stock market has risen or dropped more than 1 percent about 24 percent of trading days, said Craig Ferrantino, president of Craig James Financial Services LLC, an investment and financial planning firm in Melville.

“That’s in line with every year, it’s no different,” he said. “I ran these numbers because based on the way everything is being reported, I figured everything was going to hell in a handbasket.”

Ferrantino added he understood the fear in the marketplace.

“People want to be protected,” he said. “I always stress the best predictor of making money is time. Short-term ups and downs are not a predictor.

"Have a long-term asset allocation plan in place," he added.

An investor's asset allocation — how much he or she invests in stocks, bonds and stable but low-yielding cash — should balance the risk the investor is willing to take, depending on goals, timeline and tolerance for zig-zags in a portfolio.

"And as you get older, dial down the risk with greater emphasis on bonds" and less on stocks, Ferrantino said.

Ten Haagen recommended that investors closer to retirement age should be cutting back on "riskier stocks. But the [stock] market can still work for you, which it has to, because actuarily, you're expected to live another 20 years or so.

“My recommendation is don’t look at [daily volatility] at all, don’t be consumed by it. Diversify your portfolio, choose quality and be slow and steady,” Ten Haagen said.

Diversifying and taking the long view, however, doesn't mean there may not be trouble ahead in the stock market.

Herman A. Berliner, an economist and dean of Hofstra University’s Frank G. Zarb School of Business, said there are reasons for concern about the economy, which ultimately drives stock prices.

“I do not get concerned over a bad day on the market,” Berliner said. “But when there are multiple issues over multiple days, I get concerned. There is uncertainty over trade with China, Brexit and dysfunction in Washington.

"These are greater reasons for concern than a one-day drop in the stock market.”