[yesterday]
The S&P 500 has dropped 18% in just seven trading sessions. The Dow sliced through 10,000 as though it wasn't even there, and has lost more than 15%. The Nasdaq? Off more than 20%. In just a week and a half.
If you didn't think stocks were risky before, you certainly know better now. Is it time to get off the ride before things get even worse?
What history really says
You've already heard all the basic talk about how historically, big market plunges are a great time to buy. That's easy to say looking back, but a lot harder to believe when you're in the middle of a plunge. So let's take a closer look at some similar periods in the past 20 years or so when stocks fell sharply:
Dates of Drop % Drop on S&P 500 % Change After 6 Months
7/12-7/23/2002 (13.4%) 11.2%
9/5-9/21/2001 (14.7%) 19.5%
4/3-4/14/2000 (9.9%) 2.2%
8/26-9/4/1998 (10.1%) 28%
8/15-8/23/1990 (9.7%) 19.2%
10/5-10/19/1987 (31.4%) 14.7%
Source: Yahoo! Finance.
Note that in terms of short-term drops, the past two weeks have been extraordinary -- only the 1987 crash exceeds the speed of the declines we've seen. Also, it's reassuring to see that after big drops, the market tended to do reasonably well in the near future. That even includes drops early in the bear market of 2000-02, when those short-term gains would later give way to further declines before hitting bottom in late 2002.
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