Wall Street plunge isn’t the biggest in history, writes Peter Taylor

YOU’LL read plenty of headlines today about how Wall Street has taken the biggest plunge in history. This is true to a point, but let’s provide some context, writes Peter Taylor.

FIRST, some context.

You’ll read plenty of headlines today about how Wall Street has taken the biggest plunge in history.

This is true, but only to a point.

That claim refers to the slide in the Dow Jones Industrial Average — Wall Street’s oldest share index — overnight.

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But it only refers to the slide in points. Crucially, when measured by percentage, the slump overnight was far from the biggest ever.

Yes, a big piece of the pie has disappeared. But the pie is far, far bigger than ever before.

In proportional terms, we’ve had many times in history when a far fatter slice of the pie has disappeared.

The Dow closed down 1175 points last night, ending just shy of 24,350 points.

That dramatically exceeds its previous biggest fall — by points — which came on September 29, 2008, just after the collapse of investment bank Lehman Brothers.

The Dow Jones industrial average plunged more than 1100 points Monday as stocks took their worst loss in six and a half years. Picture: AP Photo.

On that day, the index fell 777.7 points. But that slide came from a much lower level — about 11,150 points.

Over the decade since, share prices in the US have risen dramatically.

There are various reasons for this.

Notably, the US Federal Reserve — the equivalent of our Reserve Bank — has effectively pumped a colossal sum of ultra-cheap credit into the US economy.

And over the past 15 months, the market has been turbocharged by investors drooling over the likely stimulatory effect of US President Donald Trump’s tax cuts.

Before its slump last night, the Dow — even after the heavy fall on Friday — was trading above 25,000 points. That is, more than twice the level it was at in September 2008.

By percentage, the Dow fell 4.6 per cent last night.

Make no mistake, this is still a huge drop, and the reverberations will echo through the Australian and Asian markets today and European markets tonight.

But, sized up against history, it is not monumental.

Personal sweep the floor after the closing bell of the Dow Industrial Average at the New York Stock Exchange on February. Picture: AFP PHOTO.

On that day late in September 2008, the Dow fell 7 per cent.

And even that 2008 fall was, according to Wall Street Journal records, only the 20th deepest fall for any one session in history.

The biggest fall during the global financial crisis, in October of 2008, clocked in at 9.9 per cent.

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Across the 122-year history of the Dow, the biggest single-session fall came in 1987, at 22.6 per cent.

So what happens on the Australian market today?

It will fall, and almost certainly fall hard and close sharply lower. What Wall Street does, we invariably mimic, if only to a degree.

But as Terry McCrann writes today, this is not the GFC, nor is it 1987. At least not yet.