The Dow is off by more than 1,000 points and heading for its second-worst point drop ever — here’s how the stock market tends to perform after big drops

It’s happening.

A bona fide selloff took hold on Wall Street Monday after investors spent weeks attempting to come to terms with the potential impact of COVID-19 as it spreads in countries outside of China, threatening to dent global supply chains and economies.

If it holds until the closing bell, the day’s decline would mark the second-biggest daily point drop for the Dow Jones Industrial Average DJIA, -3.20% in its 124-year history. The blue-chip benchmark dropped 1,079.97 points at its low, or 3.73%.

DatePoint change% change
Feb. 5-1,175 points-4.60%
Feb. 8-1,032-4.15
Feb. 24 (at low)-1,079.97-3.73%

To be sure, such drops are less meaningful because the Dow has been trading at lofty levels. For example, the Dow’s 1987 crash was a 508-point drop but represented a 23% decline overall.

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Monday’s selloff would mark the first time all three major benchmarks, the Dow, the S&P 500 index SPX, -3.05%, and the Nasdaq Composite Index COMP, -3.44% each fell 3% on the same day since Dec. 4, 2018, according to Dow Jones Market Data.

Monday’s downturn has wiped out gains for the Dow and the S&P 500, which was trading flat for the year but in negative territory, at last check.

The S&P 500 breached its 50-day moving average for the first time since October. Technical analysts view moving averages as dividing lines between long-term and short-term bullish and bearish averages. The S&P 500’s 50-day moving average stands at 3,275.90 (see chart below).

The Dow is trading well below its 50-moving average at 28,805.54, with its 200-day moving average at 27,224.03.

Worth a read: Apple’s stock falls below its 50-day moving average for first time in nearly 6 months

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However, despite all the relative carnage being endured by the stock market presently, stocks have a tendency to rebound after a hit of at least 2%, Dow Jones Market Data show.

The last 10 times that the S&P 500 index fell by as much as 3%, for example, it declined 0.27%, on average, in the next trading session. However, the average performance improve dramatically in the following week, month and year, as shown in the table below:

Time % change for S&P 500 in times it has fallen at least 3%
Day after-0.27%
1 week after1.83%
1 month after2.08%
1 year after12.97%

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