The Morning After The Moorings Broke

Since 1950, there have been 34 trading days after the S&P 500 dropped more than 6% in the prior two sessions.

After that, during the following 250 sessions the market was up nearly 17% on average.


And, as Nick Maggiulli, at Ritholtz Wealth, noted.

There are two big takeaways from this:

  1. Many of the highlighted dates above are not followed by a major market decline.
  2. There are a few big clusters of these large 2-session drops, most notably in 1987 and 2008.

Point 1 is good news for investors, but point 2 is quite bad news.  Point 2 is bad news because, of the 34 large 2-session declines highlighted above, more than half occurred in 1987 or 2008 (with most being in 2008).

This is why a little market fear can turn into a lot of market fear very quickly. It’s not the 6% drop that worries investors, but what happens next.

But, at the Worth Avenue advisory, we believe that when it comes stock market investing, it’s not about what happens next, it’s all about what happens after that.