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Investors Were Expecting A Rebound From Tuesday's Plunge In The S&P 500. Based On History, It Was A Lot Less Likely Than You'd Think.

Following 4% down days in the S&P 500, stocks rebounded the next day just over half the time.

A lot of investors were expecting a rebound from yesterday's 4% loss in the S&P 500. Historically, that's far from a sure thing following big down days. Let's break it down...

S&P 500 Returns Following Big Down Days

S&P 500 Returns Following Big Down Days

Including Tuesday, the S&P 500 has posted a 4%+ decline 45 times since the $SPY ETF debuted in 1993. It posted a positive return the following day just 60% of the time.

S&P 500 Returns Following Big Down Days

S&P 500 Returns Following Big Down Days

The S&P 500 has averaged a return of about 1% in those cases, but the tails have been very wide in this data set.

When these 4%+ declines have occurred probably explains a lot about why there's a relatively low success rate. Half of those days occurred during the financial crisis when volatility was high & big daily price swings were the norm. Another 9 occurred during the COVID recession.

We see another handful during the tech bubble and the 2011 debt ceiling crisis. This was the 2nd time this year that we've seen a 4% decline. Those periods alone account for 87% of the major down moves in the S&P 500.

These drops by and large occur during longer high volatility periods where it's nearly just as likely that we see a large rebound or a continuation of losses. In short, don't bank on an automatic rebound following big down days. Historically, it's nearly a coin flip.

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