Monday’s Stock Market Plunge Was Nothing

Monday’s volatility in financial markets was jarring, but not unusual. 

To be sure, seeing the SPDR S&P 500 ETF Trust (SPY) down by more than 4% and the Invesco QQQ Trust (QQQ) down by over 5.5% was bound to make even the most steadfast bulls uncomfortable

But while moves of this magnitude don't happen all the time, they happen regularly enough.    

For instance, over the past five years, there were eight sessions in which QQQ sold off 5% or more; 13 sessions in which it sold off 4% or more; and 35 sessions in which it sold off 3% or more.

Those numbers measure closing values, which means that they exclude the many other occasions in which the ETF fell dramatically on an intraday basis and then subsequently recovered. 

Monday was one such occasion. The Nasdaq-100 ETF fell 5.6% at its low and finished the day down by just under 3%.

SPY followed a similar pattern, dropping 4.3% at its low point and finishing down by just shy of 3% as well.

As I wrote the other day, these moves are more a reflection of an unwinding of investor positioning after massive rallies, rather than a sharp deterioration in the economic and earnings outlook. 

SPY, QQQ Rise Year-to-Date

In fact, even after the pullback, SPY and QQQ are still up 9% and 6%, respectively, on a year-to-date basis.

Moreover, while the Nasdaq-100 has fallen 14% from its highs (on a closing basis), the S&P 500 is only down by 9%.

That leaves the broader index shy of the 10% correction threshold. To put that in perspective, there has been a 10% or greater correction in 64% of years, according to data from Ritholtz Wealth Management.

In other words, as disconcerting as this stock market plunge has felt, it’s pretty tame in the grand scheme of things.