Dow Jones dramatic plunge

There was a historic drop from 25,337.87 to 23,923.88 points at the beginning of this week

Dow Jones dramatic plunge

Dow Jones sank more than 1,100 points in one day and global stock markets mirror the drop. While panic spreads over Wall Street, some analysts seem optimistic about the signals that the stock market is sending.

The Dow Jones industrial average is an index made up of just 30 companies. These are the top companies in their industries, the most influential and established in the world.

This index forms a view of how the overall market is doing. In other words, the Dow shows how top companies in different industries are performing and is taken as an indication of how well or poorly the economy, as a whole, is performing.

The Dow Jones industrial average was created on 1885 and has evolved over time. Among the companies included today are General Electric, Apple, Coca Cola, American Express, and Microsoft, just to name some.

The industrial index opened at 25,337.87 points on Monday and plunged 1,175 points, or 4.6 percent  in an exceptionally volatile day for global financial markets. It was the worst fall of US stocks since August 2011, according to Bloomberg, and the sudden drop was followed by falls in other major stock markets around the world.

The S&P 500 fell by 4.1 percent to 2,648.94, erasing its gains for the year, and just like the Dow, this index saw its worst drop since 2011. The Nasdaq composite dropped 3.8 percent to 6,967, which amounts to its biggest weekly drop since February 2016.

On the other hand, investors insist that there is no reason to panic since the Dow Jones fall is just a sign of the market correcting itself after having reached record highs this January. According to the Washington Post,

“The Dow Jones industrial average was up over 26 percent from January 2017 to January 2018. That's a massive jump in one year. Historically, the stock market has gained 8 percent, on average, in a year. We just experienced three times that amount.”

Correction in the stock markets is generally defined as a 10 percent reverse move of a given index. In this case, since we have seen a long upward trajectory of the market, the sudden decline should not come as a surprise. Of course, many investors have already suffered large losses and equity prices could keep going down in the following days. However, experts seem to believe that this is a long-overdue correction of the stock market rather than a meltdown of the economy.

At the opening of the New York Stock Exchange on Tuesday, the Dow fell more than 500 points, but it was up more than 350 points quite rapidly. Stock markets are experiencing extremely high volatility. While there is no need to panic yet, all of this adds to the complexity of making assessments about stock exchange.


Latin American Post | Paula Bautista

Copy edited by Susana Cicchetto