Today was the worst day in the stock market in quite a while. It is not often that the Dow drops 1,000 points and the S&P 500
drops over 100 points in one day.
Many times, large daily drops in the market result from rumors or fake news, and the negativity does not last long. But, this time,
there are two good reasons behind this big drop. One is the Coronavirus from China (and spreading) and the "inverted" interest
rate curve (i.e., where the interest rate on 3-month bonds are higher than the rates on 10-year bonds). If this virus spreads like it
could, production and trade would suffer all over the world quickly. And, if the interest rates stay inverted, the Fed could be forced
to lower rates, possibly even to zero or negative. The many awful implications of these two "reasons" are way too broad to cover
in this blog, but you can find readings about these all over the Internet.
For now, let's see how worried you should be about this drop (and future drops) at the time. First, let's see how bad today's drop
really was. Of course, a drop like today is short-term bad no matter what, but not really bad when compared to recent gains. In
mathematics this could be referred to as "relativity"; where a 3% drop in one day in a market that has grown 25-30% in the last
12 months is actually not nearly as bad as a market that has dropped 3% in one that had grown only like 6% in the last 12 months.
Graph #1 immediately show us what today's market looks like after today, and Graph #2 shows us what this looks like after
stepping back and looking at the graph from afar (like seeing a forest fire from a helicopter instead from inside the fire itself).