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No need to panic, analysts say, after Dow swings 1,600 points in one day

Dow drops over 600 points

Monday's session was one for the history books.

At its worst, the Dow Jones swung close to 1,600 points lower in the largest ever intraday point decline.

To Michael Bapis, managing director at The Bapis Group at HighTower Advisors, the sell-off will be proven meaningless in the long term.

"This is just a little blip on the radar," he told CNBC's "Trading Nation." "This breather is healthy. Stay the course."

Benchmark indexes plummeted during Friday's and Monday's sessions — the Dow shed more than 1,800 points while the lost $1.5 trillion in market cap. The two-day sell-off was blamed on Friday's jobs report, which showed stronger-than-expected wage growth, a development that extended a bond rout and raised expectations for a more hawkish Federal Reserve.

Wall Street's two-day sell-off came as a shock to markets inured to record highs and steady gains. The S&P 500 and Dow ended January with their best monthly rises in 22 months. It was also their best start to the year since the '90s.

"I think what happened was the market went too far, too fast," said Matt Maley, equity strategist at Miller Tabak. "Momentum-driven trades took the market higher than it should have gone given the tax breaks. … You've got to calm down a little bit. Some of this is artificial moves."

Wall Street's recent swings are an uncommon sight after years of low volatility. Before Friday, the Dow had not seen a decline of more than 500 points since June 24, 2016, when a surprise "yes" Brexit vote rocked global markets. On Monday, the S&P 500 snapped its longest streak on record without a 5 percent correction, an achievement it made last October.

A monitor displays stock information on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Feb. 5, 2018. U.S. stocks plunged, sending the Dow Jones Industrial Average down almost 1,600 points, as major averages erased gains for the year.
Michael Nagle | Bloomberg | Getty Images

Volatility, as measured by the VIX, roared higher on Monday as panicked selling and algorithm-driven trades caused the Dow to drop hundreds of points within minutes. The VIX surged nearly 115 percent, exceeding 37, its highest level since August 2015. Just three months ago, the measure sank to its lowest level on record.

The day's losses were enough to erase all year-to-date gains for the S&P 500 and Dow. The S&P 500 is now down 0.9 percent in 2018 and has pulled back 8 percent from its all-time closing high set on Jan. 26. The Dow ended the session with yearly losses of 1.5 percent and has gapped 8.5 percent from its high set on the same day just over a week ago.

The Dow and S&P 500 are still another drop away from correction territory, but Friday's and Monday's losses did drag down more than 75 S&P 500 companies at least 10 percent from their 52-week highs. Chesapeake Energy, Tractor Supply, EQT Corp. and Metlife were some of the worst performers, having dropped more than 15 percent from recent all-time highs.

Until we get a bounce, Bapis encourages investors to look to earnings health and the strength of the economy as reasons to hold off on getting caught up in the panic.

"The future is strong earnings. The future is positive for stocks right now. The future is positive for the economy," Bapis told "Trading Nation" on Monday. "Let's keep it long term and let's refocus where the attention should be."

Just over half of the S&P 500 companies have reported earnings so far this season with the majority besting estimates. Of those that have reported, 78 percent have exceeded profit consensus, while 80 percent have topped revenue expectations, according to Thomson Reuters.