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The Dow Just Had Its Biggest Drop Since 1987: Here's Why

The Dow Jones Industrial Average (DJINDICES: ^DJI) finished today down 2,353 points, its worst decline in point terms ever. Even when you look beyond points, however, today's drop still ranked among the top percentage declines for the Dow in its history. Its drop of just shy of 10% was the worst decline in more than 30 years, when 1987's Black Monday stock market crash lopped more than 22% off the benchmark.

Only three days in stock market history have seen greater percentage declines for the Dow. Apart from 1987, the two consecutive days of double-digit percentage drops that made up the 1929 market crash were the only ones to outshine Thursday's plunge.

Image source: Getty Images.

So what sent the Dow to such depths? Here are some the stocks that deserve the most blame, as they accounted for almost 900 points of the Dow's drop:

Stock

Percentage decline

Number of Dow points contributed

Boeing (NYSE: BA)

(18.1%)

232

UnitedHealth Group (NYSE: UNH)

(9.5%)

186

Apple (NASDAQ: AAPL)

(10%)

185

Home Depot (NYSE: HD)

(10.5%)

151

Goldman Sachs (NYSE: GS)

(12.3%)

144

Data source: Yahoo! Finance.

Losses across the board

One interesting thing about the Dow's drop was just how widespread it was. It's not surprising that all 30 Dow stocks lost ground Thursday, but what's remarkable is that even the best performing stock among the Dow 30 still fell almost 5%. With such a diverse set of companies, it's rare that you don't see at least one stock manage to limit its losses more effectively than that.

It's also revealing to see that the five biggest contributors to the Dow's losses were equally diverse. Consider:

  • Industrial giant Boeing continued to lose ground as investors worry that the aerospace company might not have the liquidity to endure the potential impact of struggling airlines deferring orders, the grounding of its 737 MAX aircraft, and the hotspot of coronavirus infections in the greater Seattle area.
  • Health insurance company UnitedHealth faces the challenge of dealing with a potential onslaught of COVID-19 patients, with the federal government having assured workers that problems resulting from the disease will be included in health insurance coverage.
  • Tech leader Apple is looking at the twin problems of seeing demand for core products like its iPhones go down in some markets, while it could still face overall shortages due to the shutdown of production facilities for key components and disruptions in getting parts shipped where they need to go.
  • Home improvement retailer Home Depot said today that it will stop holding its in-store workshops for do-it-yourself shoppers, citing its broader response to the COVID-19 outbreak.
  • Wall Street's Goldman Sachs lost ground as the Fed's decision to inject liquidity into the financial system raised fears that a possible credit event could pose a systemic risk.

As compelling as these stories were, though, the biggest reason why these five companies played such a large role in the Dow's decline is that they're among the most expensive blue chip stocks in the average on a price basis. Because the Dow Jones Industrial Average is weighted by price rather than market capitalization, it's the absolute point decline -- not the percentage move -- that defines an individual stock's impact on the benchmark.

A roaring bear

The thing that many people don't remember about the 1987 stock market crash is that although Black Monday proved to be the low point of the year, the Dow ended up having to flirt with that level again. It's entirely possible that the average will keep falling if current fears persist. And even if the Dow bounces from here in the short run, there's still no assurance that investors will never again see the benchmark this low.

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Dan Caplinger owns shares of Apple and Boeing. The Motley Fool owns shares of and recommends Apple and Home Depot. The Motley Fool recommends UnitedHealth Group and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.


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