Why the Dow just tumbled about 500 points after nearly hitting a record

Why the Dow just tumbled about 500 points after nearly hitting a record

Dec 20,2023
Washington CNN  — 

What. Just. Happened?

The S&P 500, the broadest measure of the stock market, tumbled Wednesday afternoon, starting just after 2 pm ET. It was on pace to hit a record — its first in nearly two years.

Then, the bottom fell out. Within minutes, the index was down a half a percentage point. Within an hour, it had fallen more than 1%, and it ended the day down nearly 1.5%. The Dow, which had been up nearly 100 points, ended the day almost 500 points lower.

The VIX volatility index spiked more than 7% Wednesday, peaking at about 3 pm ET before falling back somewhat. CNN’s Fear and Greed Index, which was firmly in “Extreme Greed” territory to start the day, fell back into “Greed” territory to end the day.

Don’t panic. This is pretty much par for the course during the last few weeks of the year. Traders are mostly on vacation. That ultra-low volume often leads to so-called Santa Claus rallies, in which markets surge at the end of the year when few people are paying close attention.

Despite the selloff, there was “nothing really new from a narrative perspective as things continue to slow into the holidays and year-end,” FactSet said in a note to traders. There was “no clear spark for today’s drop.”

Low trading volume can also mean high volatility. With remaining traders opting to take some recently gained profits and stuff them in their pockets, momentum shifted as folks literally and figuratively headed for the exits.

Still worried? Let’s take a quick walk down memory lane….

On December 15, 2022, the Dow plunged 765 points for no real reason at all. Some market analysts cited “recession fears,” which ended up unfounded. And on December 30, 2019, the Dow sank 200 points. CNN Business’ story noted the day was “relatively devoid of news.”

But the mother of all end-of-year market chaos moments happened in a 10-day stretch to end 2018, when the Dow sank 4,000 points before staging one of the best days on record — a 1,086-point gain — before a roller coaster day the next trading day, which nearly wiped out all those gains.

So, take a deep breath … and brace for some bumps in the road toward the end of the year.

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