Dow drops 1,147 points over three trading days. Is that a 'crash'?

Sept. 17, 2001. After the 9/11 attacks, the markets were closed for three days. When they reopened, investors were unsure of what the attack might mean to consumers. Would they stop buying cars and houses? Would the US economy go into a recession?

The market decline that day of 684 points, or about 7.1 percent, was part of a larger decline of about 20 percent over a month. By March 2002, it had made back all the losses. But then the Enron scandal hit and the so-called “Internet bubble” exploded, resulting in a two-year stock-market decline. The economy slipped into recession.

The financial market debacle of late 2008. The stock market had some bad days as the housing bubble burst and the entire financial system seemed to be on the verge of collapse. On Sept. 29, 2008, the Dow fell 777.68 points, or 6.98 percent. On Oct. 9, it dropped another 678 points, or 7.33 percent. Then, on Dec. 1 it lost another 679.95 points, or 7.7 percent. The economy went into a recession in December 2007, which lasted until June 2009.

The current drop in the market totals 1,147 points between last Thursday and the market close on Monday. What makes this decline unusual, says Dickson, is that it is related to politics, not necessarily economics. For example, on Friday Standard & Poor’s, in lowering the debt rating of the US government from AAA to AA+, cited Washington's dysfunctional and inadequate handling of the debt ceiling extension.

“This time the economy is not in recession, or at least the classic signs of a recession are not there,” he says. “This is one of the first declines due to political problems,” he says, recalling that the last time the stock market had a hiccup due to politics was 1973-74 in the wake of the Watergate scandal.

“That was the last major crisis of confidence due to political problems,” Dickson says.

However, Frank Fantozzi, chief investment strategist at Planned Financial Services in Cleveland, says he would “have no qualms” asserting that the stock market had crashed over the past three trading days. He blames “some unique” events that took place in the short term, causing investors to sell off stocks. For example, there are still concerns over the sovereign debt of some European nations. Because many banks own that debt, concerns have again surfaced about the viability of the banking system. The “debt ceiling debacle” did little to calm investors’ nerves, he adds.

Nonetheless, Mr. Fantozzi sees the market as “close to bottoming out” once investors have a chance to do a deeper analysis. “I think tomorrow will be a big buy-back day,” he says.

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