Dow: down 777.7 points (7.0%)
S&P 500: down 106.9 points (8.8%)
TSX Composite: down 840.9 points (7.0%)
It started off as a bad day as Wachovia Bank and two large European financial institutions joined a long list of casualties. When the markets closed the trading day, it was time to trot out the superlatives: the biggest percentage drop in the S&P 500 since 1987, the biggest percentage drop on the Dow since 2001, the biggest drop in the TSX Composite in eight years etc. and newspapers are already calling it another Black Monday. There was simply no place to hide in equities — among the stocks that make up the S&P 500, only Campbell Soup Company (CPB, up 0.32%) finished in the positive column. Bonds, cash and gold were the only holdouts in an otherwise ugly day.
When stock prices are collapsing, it is not easy to keep the faith in equities but times like these require wisdom and sound judgement such as that displayed in this memo sent by Dean Witter to clients on May 6, 1932, just months before the market bottomed (Source: Stocks for the Long Run):
There are only two premises which are tenable as to the future. Either we are going to have chaos or else recovery. The former theory is foolish. If chaos ensues nothing will maintain value; neither bonds nor stocks nor bank deposits nor gold will remain valuable. Real estate will be a worthless asset because titles will be insecure. No policy can be based upon this impossible contingency. Policy must therefore be predicated upon the theory of recovery. The present is not the first depression, it may be the worst, but just as surely as conditions have righted themselves in the past and have gradually readjusted to normal, so this will again occur. The only uncertainty is when it will occur….
