Best and Worst Days Intertwined: The Unpredictable Dance of the Stock Market
Those who have been my clients for a while know I tend not to get overly concerned about the stock market’s fluctuations. It’s not because I possess some magical ability to predict the future, but rather because I have a solid understanding of the past.
I know that massive swings in the market, both up and down, are a normal part of the investing landscape. Reacting to these fluctuations by exiting the market, especially during downturns, is a surefire way to lock in significant losses. This is primarily because the best and worst days in the market often occur in close proximity to one another.
Let’s take a closer look at some remarkable instances of sharp rebounds in the market following substantial declines:
October 13, 2008: The Dow Jones Industrial Average (DJIA) soared by 936 points, or 11%, just after experiencing its largest weekly decline in history, which saw the index fall by 18%. This rally was primarily driven by optimism around global coordinated efforts to stabilize the financial markets during the 2008 financial crisis.
March 24, 2020: The DJIA surged by 2,112 points or 11.4%, marking its largest single-day point gain in history. This came after the index plummeted by more than 10,000 points, or 37%, from its peak in February 2020 due to the COVID-19 pandemic. The rally was fueled by investor optimism over potential fiscal stimulus measures to combat the economic fallout of the pandemic.
October 28, 1929: After the infamous Black Thursday crash on October 24, 1929, which marked the beginning of the Great Depression, the market rallied on October 28, 1929, with the DJIA gaining 12.3%. This temporary recovery was driven by the intervention of leading bankers, who tried to stabilize the market by purchasing large amounts of shares.
August 9, 2011: The S&P 500 index gained 4.7% after the US stock market experienced one of its worst days on August 8, 2011, when the S&P 500 fell by 6.7%. This decline was due to Standard & Poor’s downgrading of the US credit rating for the first time in history. The following rebound was driven by bargain hunters and expectations of potential intervention by the Federal Reserve.
September 30, 2008: The DJIA bounced back by 485 points or 4.7% after experiencing its worst decline since the September 11, 2001 terrorist attacks. On September 29, 2008, the DJIA fell by 777 points, or 6.98%, as a result of the House of Representatives rejecting the $700 billion Troubled Asset Relief Program (TARP) bill. The rebound on September 30 was fueled by expectations that the government would eventually pass a financial rescue package.
November 13, 2008: The DJIA rallied by 552 points or 6.7% after a five-day losing streak that saw the index fall by more than 1,200 points. This rebound was driven by positive news from the retail sector and expectations of a potential bailout for the struggling auto industry.
March 10, 2009: The S&P 500 gained 6.4% after hitting a 12-year low on March 9, 2009. This marked the beginning of the bull market that lasted more than a decade. The rally was fueled by investor optimism over the government’s efforts to stabilize the financial system during the 2008-2009 financial crisis.
August 26, 2015: The DJIA recovered by 619 points, or 4%, following a six-day losing streak that wiped out nearly 1,900 points from the index. This decline was primarily due to concerns over an economic slowdown in China. The rebound was driven by investor optimism over potential monetary stimulus measures from central banks, including the Federal Reserve.
December 26, 2018: The DJIA surged by 1,086 points, or 5%, marking its largest single-day point gain in history at that time. This came after a significant decline in the stock market in December 2018, driven by concerns over trade tensions, slowing global growth, and the Federal Reserve’s interest rate policy. The rebound was fueled by strong retail sales data and positive remarks from the White House regarding trade negotiations with China.
These historical examples further emphasize the unpredictable nature of stock market movements and the critical importance of maintaining a long-term perspective when investing. The key takeaway is to remain steadfast in your investment strategy, even when the market appears to be on a rollercoaster ride. By understanding that sharp declines are often followed by impressive rebounds, you can avoid making emotionally-driven decisions that may jeopardize your long-term financial goals.
It’s essential to focus on your long-term financial objectives and not let short-term market turbulence shake your confidence. By maintaining a disciplined and well-diversified investment approach, you can weather the inevitable ups and downs of the market, and ultimately, achieve your financial goals.