The US stock market can't find steady footing.
On Monday, stocks took another beating as the S&P 500 fell 2.4%.
On the one hand, a sharp reversal from the historic one-day jump we saw in the index just two weeks ago. On the other hand, a state of affairs that is completely consistent with stock market history.
"The biggest down days tend to be followed by the biggest up days and this pattern once again is playing out," Keith Lerner, co-chief investment officer at Truist Wealth, wrote in a note earlier this month.
Lerner looked at historically notable two-day slides in the market — 1987, a series of days in 2008, March 2020, April 3-4 — and found that each was followed by two-day bounces in excess of 9%. The 9.5% rally seen in the S&P 500 on April 9 fits the bill.
And should the US economy tip into recession, the one- and two-year returns from the market's bottom tend to be memorable, with the S&P 500 averaging 40% and 54% over those periods, respectively. The S&P 500 averages an annual gain closer to 10%.
Noting that volatility spikes come in clusters has become customary in discussing the stock market. And this new general truth also offers an important lesson for investors.
For savers using the stock market's long and growing history of usually going up over time, this volatility is the price of admission for realizing those gains.
As Lerner highlighted in the same investor note, portfolios that miss the S&P 500's best day since 1990 would lag those invested over the whole period by about 10%. Those missing the five best days would trail by over 35%. Miss the best 10 days, and your gains over the period are more than cut in half.
Talking through the bad results realized, however, must not distract from seizing on the opportunities created. In hindsight, every market dip in the last 20 years looks eminently buyable.
At the time, few of them seemed to offer strong reasons for jumping back into the market.
The data shows that out of the market's biggest spasms come the market's best opportunities. And that getting emotional around these big spasms can leave your portfolio trailing woefully behind your goals.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. No strategy assures success or protects against loss.