Today we saw what is typical of an unhealthy stock market. This morning, when it looked as if stocks might have a monster day, I tweeted that 22 of the 25 single best days since 1970 occurred under the 200-day moving average. The point is that outlier days, both to the upside and to the downside, tend to happen in sick markets.
Today, the S&P 500 got as high as +2.9% from the previous close and fell as much as -4.15% from those highs. This is just the 59th time this has happened in the last 11,518 days, or 0.5% of the time. What you’ll notice in the table below is that this type of day has happened in pretty ugly markets.
Stocks have just been punched in the mouth, falling more than ten percent in just the last five days.
More stocks are below their 200-day moving average than at any time since 2011.
The good news about resetting expectations and letting some air out of stocks is that it sets us up for higher future expected returns. The other reason to not jump out of the window is that there are no obvious recessionary signs, not yet anyway. Volatility happens fast, which is why having a plan in place to reduce the number of decisions you make under duress is key.
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.
Get a Full Investor Curriculum: Join The Book List
Every month you'll receive 3-4 book suggestions--chosen by hand from more than 1,000 books. You'll also receive an extensive curriculum (books, articles, papers, videos) in PDF form right away.
