Advertisement
Markets

Stock Market's Big Selloff Calls for Calm, Context

Investors are left feeling antsy after the Dow Jones industrial average tumbled more than 1,000 points on Monday.

Wall Street's woes are far from over.

What Happened in the Stock Market Today?

An early recovery on Monday, Feb. 5, deteriorated into deep losses that were likely exacerbated by computerized trading that at one point sent the Dow tumbling below 24,000. By the close, the industrial average was off 4.6% to 24,345 -- good for an 8.5% decline from the Jan. 26 closing high of 26,616 and putting the Dow into negative territory for the year. On a points basis, the 1,175-point decline was the largest in market history.

Advertisement - Article continues below

After a stomach-churning day like this, some context helps. Consider this: The S&P 500 index, which is off about 8% from its high, has recorded its first 5% pullback in 406 trading sessions -- the longest such streak without a 5% retreat in the history of the index. The second-longest stretch (394 sessions) was more than 20 years ago. That means 5% declines are actually common, and far from a cause for panic. Throw in the fact that stock valuations were near historic heights, and that even technical charts showed the market as overheated, and that's a perfect recipe for the kind of pullback we're experiencing right now.

Translation: Don't be scared yet, but do be prepared. In times of market tumult, investors often pile into utility stocks for safety and stability, not to mention their sizable dividends. To wit, the Utilities Select Sector SPDR Fund (XLU) suffered the smallest losses of any of the SPDR sector funds. For a little more diversification than single stocks, investors can look to ETFs that hold up better than others (and can even profit) during bear markets. But perhaps the most important thing investors can do right now is keep their heads amid the day's admittedly dour headlines. Instead, learn what you need to know about bear markets -- what they are, and how they happen -- before the next one arrives in Kiplinger's Bear Market Quiz.

Advertisement
Advertisement

Most Popular

18 Things You Can't Return to Amazon
Smart Buying

18 Things You Can't Return to Amazon

Before tossing these items into your virtual shopping cart, be sure to read Amazon's return policy first.
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
7 Foreign Countries Luring Americans to Work Abroad During the Pandemic
careers

7 Foreign Countries Luring Americans to Work Abroad During the Pandemic

Work remotely – really remotely – in these appealing destinations offering special visas for American workers.
September 18, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
Does a 40% Bond Allocation Make Sense in Today’s Portfolios?
retirement planning

Does a 40% Bond Allocation Make Sense in Today’s Portfolios?

For many investors, the short answer is no. Here’s why, and what you might consider instead.
September 7, 2020
Is the Stock Market Closed on Labor Day?
Markets

Is the Stock Market Closed on Labor Day?

The good news: Stock markets and bond markets alike get the day off for Labor Day. But traders don't get an early start to the weekend.
September 5, 2020