It Dropped 1000 Points? OMG!!

The Dow Jones plunged more than 1,000 points on Thursday in another volatile day for the stock market. It was the second-worst single-day point drop in history, beaten only by the record set after this Monday’s 1,175-point drop. 

My first reaction to this news was OMG!! We are going to have another Great Depression!! News articles from around the country boasted the dire tidings. Wow.. the Dow has lost another 1000 points. It just dropped 1175 Monday!! But you know something, I really did not know what the stock market dropping 1000 points meant.  So I decided to do a little investigating. A point on the stock market is equal to $1.00. The Dow is a list, or index, of 30 companies considered to be good indicators of the market’s strength. Simply put, these companies are samples of the market, when they do well, the economy is doing well, and vice versa. So the Dow takes the “average value of these companies every day to see if it has increased or decreased.” Because the index is dealing with companies that are worth billions of dollars, a simple method of displaying their changes in value had to be formulated. The points still represent dollars, but the ratio is not 1:1. The Dow is a price-weighted index, which means that the sum of the component stock prices is divided by a divisor. Instead of dividing by the number of stocks in the average, as is done in an arithmetic average, the Dow divisor is used for this index. So what is the Dow divisor?   It is the sum of the component prices which changes whenever one of the component stocks has a stock split or stock dividend of the 30 companies on the list.  Currently it is less than 1. In 2007 the Dow’s estimated worth was $5 billion. Do we really have anything to worry about? As one expert, Rich Guerrini, CEO of PNC Investments, puts it, “This is not the end of the world, but it is uncomfortable.” We’re in the ninth year of recovery after the Great Recession, and sharp stock market pullbacks have been relatively infrequent in recent years. Markets were historically calm in 2017. That makes it easy to forget that the stock market’s rise and fall is, well, pretty commonplace. The Dow closed at 23,860.46, down from a high of  26,616.71 set on January 26, 2018.