Chart of the Week: Best and Worst Market Days Stick Together

Chart of the Week: Best and Worst Market Days Stick Together

September lived up to its reputation as a lousy month for stocks as the S&P 500 index posted its third-worst September in six-and-a-half decades. Then, as mentioned above, October got off to a cracking start with the S&P index gaining more than 2% on each of the first two days.

What this volatility tells me is that we are firmly in a bear market. During bear markets, stocks tend to move much more—both up and down—on any given day than in bull markets. In fact, the worst and best days in the stock market tend to cluster during bear markets.

Note: Chart shows daily index level for the S&P 500 from 12/31/89 through 10/4/22 along with 20 largest day-to-day gains in value (“Best”) and 20 largest day-to-day declines in value (“Worst”) over the period. Sources: Morningstar, Adviser.

As you can see, the 20 best days (triangles) and the 20 worst days (diamonds) in the stock market since 1990 occurred during the run-up and then bursting of the tech bubble (1997–2002), the Global Financial Crisis (2008–2009) and the COVID panic (March 2020). Yes, there were also a few outliers, but you get the picture.

I think there’s some logic to all of this: When stocks are down a lot, trader and investor emotions are on edge. When emotions are running high, the market is poised for big swings day-to-day.

The fact that the best and worst days are clustered together is why you can’t let the bad days spook you out of the market… it would cause you to miss the best days. And you very much want to be there for those good days.

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