Monday’s historic stock market loss of 1,175 points to 24,346, the largest one-day decline ever, scared Main Street investors but thrilled Wall Street professionals.
Although the drop erased roughly six weeks of gains, professional investors expressed relief that an overdue correction had finally come to pass, after months of relentless gains. Monday’s move marked a drop of 4.6 percent for the Dow, the largest since August 2011.
The blue-chip Dow Jones Industrial Average is now down 8.5 percent from its Jan. 26, 2018, high. That’s approaching a 10 percent loss that would equal a correction.
“We’ve had nothing but good news” in the economy, with 200,000 new jobs, wage and home price increases, worker bonuses, and record corporate profits, said Dan Roccato, president of Quaker Wealth Management in Moorestown.
“But in the often-twisted logic of the stock markets, good news can be bad news. As the economy heats up, interest rates are creeping higher. As interest rates increase, investors are more likely to allocate their funds to bonds vs. stocks. The demand for stocks falls, and so do prices.”
Retail investors on Monday afternoon raced to check their accounts online, causing website outages at several brokerage firms.
“We’ve seen this movie before in 2014, [which is] painful, but perfectly normal. Though not immune to declines, diversified portfolios tend to fare better when the market gyrates. It may not be pretty, but these gutter washers are an integral part of investing. Indeed, we welcome these disruptions in order to rebalance our portfolios,” Roccato said. “Healthy markets can’t defy gravity forever. We need these occasions to remind us there’s risk in investing, particularly in the short term.”
Bankrate.com’s chief financial analyst Greg McBride agreed that Monday’s swoon, with the Dow at one point down roughly 1,600 points, “takes us back about two months. The S&P 500 last closed lower than this on December 7th” of last year.
“Markets have been addicted to low interest rates and global central banks pumping money into the financial system. As economies around the world are improving, this means higher interest rates and less stimulus from central banks. That’s why investors are throwing a hissy-fit. Not because anything is wrong,” McBride added.
The U.S. and global economies continue improving, more people return to work or bank bigger paychecks, and tax reform is expected to boost the bottom line of businesses and households this year.
If the market is falling, that means it’s now on sale, said Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, based in Brooklyn, N.Y.
“Typically, stock markets make new highs in a stair-step pattern and this market has done so. The stairs have gotten steeper, with the most recent set of records coming fast and furious with the S&P index hitting 62 new highs last year, for an average of about one every four trading days,” he said.
Given how quickly the Dow has risen the last two years, a 1,000-point drop, for example, “represents just a few percent. I’m hoping to buy some stuff on sale. This is awesome, this is exactly what we needed, a good sell-off of a couple thousand points,” he said on Monday.
Wiener said he’s looking to buy more Hartford Healthcare Fund [HGHYX] and Vanguard Health Care Fund [VGHCX], “stuff I like and own for the very long haul.”
Slide causes website crashes
An eye-popping 1,100-point drop in the stock market had individual investors scurrying to call their brokers, or log on to their computers to check accounts.
For example, retail investors who have money with Vanguard, based in Malvern, took to Twitter and online Vanguard investor forums such as Bogleheads.org to complain about customer service.
Vanguard’s website didn’t offer Susan Oakland access in the last hour before and after the close of trading at 4 p.m., she said.
“I just logged in and got: ‘Your account information is temporarily unavailable. We apologize for the inconvenience. Please try again later, or contact us for assistance,’ ” she wrote in an email. Others said they were put on hold or were hung up on after several rings. Others, such as Wiener, said they had no problems logging in to their accounts online.
— dzulik (@dzulik1) February 5, 2018
Some of the newer Wall Street robo-advisor entrants such as Wealthfront and Betterment, which compete with established brokers, also saw their websites crash for a short time during the sell-off, according to Bloomberg.
Uh? There was no communication today and the website and app went down for an hour.
— Russell Quinn (@russellquinn) February 5, 2018
— Lora Rose (Ro) (@FeminismTech) February 5, 2018
Among the biggest losers were Boeing and Wells Fargo; Boeing’s 5.7 percent share price decline lopped off 138 points from the Dow all by itself, while Wells Fargo lost 9 percent of its value after the Federal Reserve on Friday barred the bank from growing past the roughly $1.95 trillion in assets it had at the end of 2017.