The Market Went Higher... Then It Crashed. Now What?
Those who know me know I’m a big believer in historical and seasonal market data.
Technology has transformed how we live and how markets operate. But the people making investment decisions still experience the same fear and greed that have shaped human behavior for thousands of years. Those emotions influence what investors buy, what and when they sell, and how they act.
That’s why I study history. It gives us a framework for understanding how investors have responded to similar circumstances—and perspective when emotions are running high.
Thursday certainly qualified.
After Wednesday’s post-election rally, the Nasdaq plunged 5.52%—its worst day of the year. Of Nasdaq selloffs since 2015, only five sessions were worse than Thursday. This was a brutal reversal, particularly for technology and AI related stocks. Sources: closing report, AP.
Time to sell everything? I don’t think so.
I remain bullish. But that conviction comes with an acknowledgment: the next several days or weeks could remain uncomfortable.
What has happened after drops like this?
There have been seven previous Nasdaq declines of at least 5% since 2015. In that sample:
- Six of seven were followed by a gain the next trading day. But…
- Five of seven were lower one week later. Yet…
- Six of seven were higher three months later, with an average gain of approximately 23% across all seven observations.
The path deserves as much attention as the eventual return. An initial bounce has often come with more turbulence afterward.
This illustrates why an ugly day and a constructive longer-term outlook can coexist.
Fear spiked, too.
The VIX, a measure of expected S&P 500 volatility, jumped nearly 70%Thursday to 28.18. Source: Cboe.
Charlie Bilello’s Creative Planning analysis ranks that as the third-largest daily percentage increase since 1990. Across the historical observations with available forward returns in its top-20 sample, subsequent S&P 500 total returns averaged approximately 10% over six months and 17% over one year.
Individual outcomes varied substantially, including losses. Still, the broader message is useful: extreme fear has often accompanied attractive opportunities for investors able to tolerate continued volatility.
And most importantly - The bigger picture still matters.
The post-midterm history remains extremely encouraging. Stock Trader’s Almanac data shows the S&P 500 higher six and twelve months after ALL 19 midterms from 1950 through 2022. Thursday doesn’t invalidate that history; it reminds us how uncomfortable the journey can be.
Technology has also undergone a meaningful reset. We’ve been in the camp that the broad market wasn’t in a bubble. But for those arguing that parts of tech were, consider this: a chart attributed to Morgan Stanley showed a deeper drawdown in its TMT momentum factor than during the dot-com bust—and that was BEFORE Thursday’s selling!
I also continue to see total return opportunities in quality fixed income through income and potential price appreciation if yields continue to decline.
I remain bullish, with respect for the risks. History helps me keep that perspective when the headlines—and the screens—turn red.
If you’re wondering what this means for your portfolio, let’s talk.
You don’t have to be a client to start a conversation. We can review what you own, where your risks are concentrated, and whether your investments fit your goals and cash needs.
Reply to this email to schedule a portfolio review. If Thursday left you questioning your strategy, let’s turn those questions into a clear plan—before the next volatile day tests it again.
Past performance does not guarantee future results. Historical samples are limited and may contain overlapping periods. Investing involves risk, including loss of principal.
