MW Was the stock market's 3% selloff Monday a 'black swan' event? Author Nassim Nicholas Taleb says no.

By William Watts

In fact, the 'Black Swan' author says the absence of such a drop would be the bigger surprise

'The absence of a 3% or more drop in a one-year period is a black swan.'Nassim Nicholas Taleb, distinguished scientific adviser, Universa

That's "Black Swan" author Nassim Nicholas Taleb, who told CNBC that Monday's 3% drop for the S&P 500 SPX - the U.S. large-cap benchmark's biggest one-day decline since Sept. 13, 2022 - isn't the avian-themed warning sign that panicked investors might fear.

Taleb appeared amused by the idea that the U.S. stock market's pullback - part of a global rout that sparked headlines and alarm around the world - was extraordinary, noting that drops of 3% or more in any given year are relatively common.

Indeed, going back to 2004, the S&P 500 has seen a total of 79 days, including this past Monday, with declines of 3% or more - an average of nearly four such days per calendar year, according to Dow Jones Market Data. Of course, some years, like 2023, saw no such declines, while others saw multiple drops (there were 23 in 2008).

"The Black Swan," published in 2007, became a financial-crisis bestseller and focused on the extreme impact of rare and unpredictable events.

In his CNBC interview, Taleb noted his definition of a black swan, which includes a "very large, impactful deviation" that's also "outside the realm of expectation."

By contrast, Monday's drop "was not large nor particularly impactful," he said, while the frequency of 3% or larger declines means that it was hardly to be unexpected.

U.S. stocks on Tuesday were clawing back a chunk of the previous day's decline, with the S&P 500 up nearly 2.4% in afternoon trading. The Dow Jones Industrial Average DJIA, which skidded more than 1,000 points Monday, was up around 740 points, or 1.9%, while the Nasdaq Composite COMP was bouncing 2.5% higher after a 3.4% decline on Monday.

See: The VIX - the market 'fear gauge' - is falling but hasn't given stocks the all-clear

-William Watts

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August 06, 2024 14:41 ET (18:41 GMT)

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