A 1,000-point drop in the Dow Jones Industrial Average (DJIA) may appear like a great deal but, based on historical standards, it is not much. Japan’s Nikkei has sold off 14% so far this year, and 4% in a day. The sell-off in equity markets has accelerated. A thousand points off the DJIA would be only 6.5%. And the outside forces that pressure markets up and down are pushing them relentlessly down for the time being.
The DJIA has a tradition of plunging on bad news. It sold off 7.9% on October 15, 2008, a single day during the financial crisis in 2008. More than once during that panic, it dropped more than 7%. Nearly as recently, on October 19, 1987, the DJIA dropped 22.6%. The cause was not extraordinary. The economy was in recession and investors rushed for the exits once it became clear that day’s trading would be terrible.
The swirling down has already started, as the U.S. markets have corrected more than 5%. Among the reasons are concerns that gross domestic product (GDP) in the United States and, probably, in other larger economies have lost the steam of their recoveries. The end to central bank support stands as one reason. Emerging markets like China, India and Brazil cannot be counted on to move global GDP higher, as their own growth rates have slowed.
Consumer confidence in the United States has faltered. Some evidence of that has come out in slow holiday retail sales. Housing prices have stopped rising in some American markets and have slowed in others. The pace of home sales has slowed, as has the number of homes put onto the market.
Unemployment may have dropped to 6.7%, but many experts say that long-term unemployment will dog a recovery for years. And the hope that the jobless rate will return to a “normal” 5% has all but disappeared.
If earnings are at the heart of much of the market’s movement, there has hardly been one huge American public corporation that has outperformed, as measured by fourth-quarter numbers. Certainly based on market cap, there has been little good news. Apple Inc. (NASDAQ: AAPL), Exxon Mobil Corp. (NYSE: XOM), Wal-Mart Stores Inc. (NYSE: WMT), International Business Machines Corp. (NYSE: IBM) and General Electric Co. (NYSE: GE) each have stumbled.
As the markers for equity market movements are taken into account, there is no positive figure on the ledger. However, there is a large collection of bad ones.