The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have navigated their way through historic bouts of volatility since the beginning of April.
A number of factors -- led by President Donald Trump's tariff policy -- have caused Wall Street's wild vacillations.
The S&P 500 has recovered half of its peak-to-trough decline, which for bear markets and near-bear markets (as in this instance) is a historically bullish sign.
Though the stock market is an undeniable wealth-creating machine over long periods, it can occasionally turn into a roller-coaster ride for investors over shorter timelines.
On Feb. 19, the benchmark S&P 500(SNPINDEX: ^GSPC) peaked at a close of 6,144. Over the next two months, the broad-based index and ageless Dow Jones Industrial Average(DJINDICES: ^DJI) both fell into correction territory. Meanwhile, the growth-driven Nasdaq Composite(NASDAQINDEX: ^IXIC) plunged into a bear market, which is its first since 2022.
But it's not just the peak-to-trough declines in Wall Street's major indexes that stands out -- it's also the velocity of single-session moves. In April, the Dow Jones, S&P 500, and Nasdaq Composite all recorded their largest single-day point gains in their respective histories on April 9. This followed the S&P 500's fifth-worst two-day percentage decline (-10.5%) in 75 years.
Image source: Getty Images.
When stocks gyrate wildly, investors often look for historical correlations and events that'll give them a competitive edge in knowing which direction the market will head next. Even though there's no data point, event, or forecasting tool that can guarantee what'll happen next, there are a small number of correlative events that have strongly correlated with moves higher or lower in the broader market.
Last week, the S&P 500 hit one of these correlative milestones, which over the last 75 years has a (thus far) perfect track record of forecasting what's next for stocks.
Why have stocks been historically volatile over the last five weeks?
Before unearthing this unique milestone for Wall Street's benchmark index, it's important to grasp why the Dow, S&P 500, and Nasdaq have been vacillating so wildly since April began -- and why outsized volatility is likely to continue in the weeks to come.
The heart of the fear and uncertainty that's whipsawed Wall Street originates from President Donald Trump's April 2 tariff announcement. Trump initiated a 10% global tariff, as well as introduced higher "reciprocal tariff rates" on dozens of countries that have historically run trade deficits with America. On April 9, Trump placed a 90-day pause on these reciprocal tariffs for all countries except China, which is what kicked off the largest single-session point gains in history for the Dow, S&P 500, and Nasdaq Composite.
To President Trump, tariffs are a relatively cut-and-dried issue. They're being used to generate revenue for the U.S., protect American jobs, and encourage businesses to manufacture their products in America. However, the real-world application of tariffs is anything but cut-and-dried.
One of the biggest concerns with Trump's tariff policy is that it makes little differentiation between input and output tariffs. The latter is placed on a finished product imported into the country, whereas the former is placed on a good used to complete the manufacture of a product in the U.S. Input tariffs risk making U.S.-manufactured products pricier and less-competitive with those being imported from overseas markets.
Trump is also doing Wall Street no favors by frequently altering which products are subjected to tariffs, as well as when tariffs will go into effect. Investors want transparency and clarity, which has been nonexistent, thus far, with regard to tariff policy.
Other whipsaw catalysts for Wall Street include the historically high valuation for stocks entering 2025, a modest 0.3% decline in first-quarter gross domestic product, and a rapid recent increase in Treasury bond yields, which can make borrowing costlier for consumers and businesses.
Image source: Getty Images.
This rare event for the S&P 500 should have investors seeing green
With a clearer understanding of what's caused historic bouts of volatility for the Dow, S&P 500, and Nasdaq Composite over the previous five weeks, let's turn back to the rare milestone the S&P 500 achieved for only the 17th time since 1950.
You might be thinking I'm going to mention the S&P 500's nine-day winning streak, which came to an end this Monday, May 5. While this isn't the specific event, it did help lead to the S&P 500's latest milestone, which is bound to have investors seeing green.
Last week, the S&P 500 officially recovered half of its peak-to-trough decline of 18.9% between Feb. 19 and April 8. This marked the 17th time since 1950 that the S&P 500 had entered a bear market (a loss of at least 20%) or near-bear market (an arbitrary term that refers to declines of close to 20%, such as the 18.9% the S&P 500 lost in less than two months) and recovered at least half of its losses.
In the social media post below on X from Carson Group's Chief Market Strategist Ryan Detrick, he examined the performance of the S&P 500 at various time intervals following a 50% recovery from a bear market or near-bear market since 1950.
Although the S&P 500's performance has been somewhat of a coin flip one month after hitting a 50% recovery from a bear market or near-bear market low, there's no mistaking how the index performed one year later. In 16 out 16 instances, the S&P 500 was higher.
Though there have been a couple of occasions where the benchmark index eked out a small gain over 12 months, it's been far more common to see the stock market roar higher after a 50% recovery from a bear market or near-bear market. The average gain 12 months later following these 16 occurrences is 18.3%, which is effectively double the average annual return for the S&P 500 since 1950 of 9.2% (per Detrick). In short, this event tends to mark a period of outsized gains for Wall Street's widely followed index.
Additionally, Detrick data set shows that on only one prior occasion (2022) out of 16 did the S&P 500 recover at least 50% from its bear market or near-bear market low and go on to achieve a new low. In other words, a 50% recovery has signaled that the low is in 94% of the time over the last 75 years.
What Ryan Detrick's data set ultimately speaks to is the nonlinearity of the investing cycle. This is to say that, while stock market corrections, bear markets, and crashes are normal, healthy, and inevitable aspects of the investing cycle, they're historically short-lived.
In June 2023, the analysts at Bespoke Investment Group published a data set on X that compared the calendar-day length of every S&P 500 bull and bear market dating back to the start of the Great Depression in September 1929. Bespoke found the average S&P 500 bear market lasted only 286 calendar days, while the typical bull market endured for roughly 3.5 times as long (1,011 calendar days).
If time is in your corner, it overwhelmingly pays to be an optimist.
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