October 2008, was a hard month to be an investor. Even the calmest shareholders nerves were strained as $2.4 trillion of market value evaporated from the stock market in the span of just five trading days.
The four largest point swings -- positive and negative -- all happened within a 29-day stretch in the fall of 2008. Wall Street jerked between fear and greed as the financial crisis threatened to end the flow of capital through the global economy while at the same time creating historic deals for investors willing to buy shares.
The single worst day
The record for largest single-day point loss is Sept. 29, 2008. The Dow plunged almost 800 points that Monday after Congress rejected the Bush administration's $700 billion bank bailout plan. World central banks also unveiled a coordinated plan to increase liquidity of the U.S. dollar. The Federal Reserve said the moves "should reassure financial market participants" that bankruptcies weren't about to cascade through the economy.
But investors weren't reassured:
"Defiant House Rejects Huge Bailout; Stocks Plunge; Next Step is Uncertain" -- The New York Times
"Stocks Take Record Tumble, Down 777 Points" -- CBSNews
"Bailout Plan Rejected, Markets Plunge, Forcing New Scramble to Solve Crisis" -- The Wall Street Journal
The single best day
It was exactly two weeks later that Wall Street logged its biggest single-day point gain in history. The trading session on Oct. 13, 2008 added 936 points to the Dow, and injected a record $1.2 trillion back into the market value of U.S. businesses.
On that day, the Federal Reserve made a surprise cut to interest rates, slicing them to 1% after having cut them to 1.5% just a week earlier. Lawmakers approved the bank bailout plan, and central banks around the world took steps to save their own banks by providing nearly unlimited liquidity. Wall Street liked what it saw:
"Dow Takes Giant Leap As Bailouts Snap Gloom" -- The Wall Street Journal
"Record Surge Gives Wall Street a Boost" -- CBSNews
"Raging Bulls" -- CNN Money
Here's a list of the five biggest single-day point moves, in each direction, over the Dow's history (courtesy of The Wall Street Journal):
One takeaway from this list is that major up days tend to cluster around big down days. That adds weight to the idea that market timing is futile. After all, even if you managed to avoid the single worst day by cashing out in late September, you'd likely miss the epic rally points that followed. And missing even a handful of the market's best trading days can kill your portfolio. Fellow Fool Brian Stoffel calculated that 45% of the stock market's gains came from just 0.6% of its trading days for the three years following the Great Recession.
Rather than trying to anticipate the next huge boom or bust, you're better off just holding stocks and adding new money to the market in small increments over time.
Another lesson here is that big stock market swings don't tell us much about where we are in the bull vs. bear cycle. The 900 point gain on Oct. 28, 2008 pushed the Dow up to 9,065, but it didn't mark anything close to a turning point for this market. It would be four months -- and another 28% decline -- before stocks hit the bottom of 6,547 points on March 9, 2009.