The Worst Dow Drop Since 1987

Apparently the financial crisis was just taking a ‘power nap.’

Today the Dow Jones Industrial Average dropped 7.87%, or 733.08 points, to 8,577.91.

That’s the largest percentage drop in the Dow all year, and we’ve had a 7.3% drop on Oct. 9 and a 6.98% drop on Sept. 29.

In fact, it’s the largest percentage drop in the Dow since the 1987 stock market crash — when the Dow fell 22.6% on Oct. 19 and 8% on Oct. 26. Before 1987, you need to go back to 1937, 1933, 1932, 1907 and especially 1929 to find daily drops in the Dow this large.

But didn’t stocks surge on Monday? Yes, but that obviously wasn’t the ‘all clear signal’ for investors. On Oct. 13, the Dow rose 11.1%, or 936.42 points. According to Stock Trader’s Almanac (from which I’m getting a lot of these figures), that was the best percentage rise in the Dow since 1929 and the early 1930s.

It should tell us something that the last big surges in the Dow occurred during the Great Depression. An 11.1% jump in the Dow is not evidence that the market has hit bottom.

Thanks to today’s drop, only a 1.5% fall in the Dow would put it right back at its lowest point of the year — its closing price from Friday, Oct. 10.

These are extreme times. It will be a long time before we know that the market has actually hit bottom. And even an 11% cushion is no guarantee that stocks won’t tumble yet again to new lows.