It’s hard to get too bearish when nobody is bullish. But it’s hard to get too bullish when the S&P 500 is just 13% off its all-time high.
It’s normal to have conflicting views like this when the market is going down. And it’s normal for your views to ping pong on a daily basis; bearish on down days and hopeful on up days. One of the worst parts about bear markets, aside from just the losing money part, is the false hope along the way. Violent selling leads to violent rallies that lead to even heavier selling.
We tend to see big up days and big down days happen in highly volatile markets. The best days follow the worst days until the selling subsides. The dots on the chart below show the 25 best and worst days since SPY started trading in 1993.
We haven’t quite gotten that this time around, at least not in the S&P 500. It’s just been a steady drip for the mega caps. A lot of the blowups are happening underneath the surface or in different ponds entirely. ARKK, the epicenter of today’s selling, is experiencing a violent back and forth. From the morning of February 24th (Thursday) through the next Monday afternoon, it bounced 18%. Since then, it’s down 26%.
I wrote about this dynamic of lower highs and lower lows during the Covid crash. This chart shows all the bounces investors had to live through on the way to the bottom after the dotcom bubble burst. It’s easy to look at this chart and be like, yeah whatever. Lines don’t convey feelings. But look at it again. Three 20% bounces on the way to a 50% crash. Brutal.
I don’t know if this is what we have in store. I sure hope not. But either way, try not to get too excited on up days and too despondent on down days. The market’s gonna go where it’s gonna go and you need to preserve your mental capital.
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.