Why the Dow Jones Suffered Its Biggest Single-Day Drop Ever

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The Standard Poor’s 500 index, a broader market barometer tracked by many index funds, climbed 1.7 percent to 2,695.14.

Traders are still braced for more volatility as they try to figure out if the swings over the past few days are the start of a deeper correction or just a temporary blip in the USA market’s nine-year bull run.

The Dow Jones Industrial Average began to recover Tuesday after its largest single-day decline in the index’s history, a drop that also impacted markets overseas.

The Russell 2000 index of smaller-company stocks dropped 44.18 points, or 2.9 percent, to 1,463.79.

The SP 500 fell 6 percent Friday and Monday, and it’s down 6.6 percent from the recent record high it set on January 26.

On Monday, bitcoin slid from around $11,500 to below $7,000, while the Dow Jones industrial average fell by a record 1,175 points. The biggest decline in percentage terms was on May 6, 2010, when the “flash crash” resulted in more than a 9 percent fall.

Japan’s Nikkei 225 index saw its biggest one-day point drop since 1990.

That followed the lead of Wall Street where the Dow Jones closed 4.5% lower.

The double-digit percentage stock decline has occurred even though Wall Street stresses that the health of the economy, labor market and USA businesses remain strong. It ended down 4.7 percent at 21,610.24.

USA stocks swooned Friday and Monday as investors anxious that accelerating inflation and higher interest rates could derail the market’s record-setting rally.

Treasury Secretary Steven Mnuchin says the stock market has been “quite volatile” in recent days, but that has not shaken his view that the underlying economy is strong.

Indices in Asia and Europe also witnessed similar falls.

Meanwhile, the SP 500 lost one per cent to 2,622 points.

“The share selling….reflects a higher than previously anticipated interest rate environment”, CMC Markets analyst Michael McCarthy said.

On Friday, the Department of Labor said 200,000 jobs were added to the US economy last month and that American unemployment was staying at 4.1 percent, the lowest rate in almost 20 years.

This is how many stocks in the SP 500 index have already lost at least 20% of their value in the midst of this sell off, according to CNBC. “A very crowded trade, it just took a while to unwind that”, said John Lynch, Chief Investment Strategist at LPL Financial in Charlotte, North Carolina.

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It was a bruising reminder for investors – and for President Donald Trump, who has frequently touted the stock market gains as proof of the success of his presidency – that an overbought market will eventually stumble. It lost 3.4 per cent.

A trader works on the floor of the New York Stock Exchange in New York Feb. 6 2018

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