- Worst 1 day market declines in order of magnitude.
- Friday's decline is ranked #34 out of the 17,652 trading days in the sample. Is that bad enough? I guess it'll do till the really bad day gets here.
- We should be prepared for more pain to come.
- There is good news. On average, these very bad days lead to good outcomes 12 months later.
If this ain't a mess, it'll do till the real mess gets here.
- Tommy Lee Jones, in the film No Country for Old Men
Table 1. Worst 1 day market declines in order of magnitude.
This table shows the 34 worst 1-day market declines since 1950. Friday's decline is ranked #34 out of the 17,652 trading days in the sample. That works out to the 99.8% worst day since 1950. Is that bad enough? I guess it'll do till the really bad day gets here.
In the below table, Max DD is the lowest point reached during the following 3, 6, and 12 months. The % change is where the market ended at the end of 3, 6, and 12 months. At the bottom of the table you'll find the averages for each column of data.
There are a couple of things that jump out at me from this table. The obvious one is the magnitude of Friday's decline. (Which came after 5 prior daily declines, by the way.)
Next is the expected further decline from here. We should be prepared for more pain to come.
Lastly, there is the good news. On average, these very bad days lead to good outcomes 12 months later. The best recovery came in March of 2009, the bottom of the great bear market of 2008.
The worst outcome after 12 months was a further decline of nearly 16%, during the early stages of the tech bubble in 2001.
What comes next.
History tells us that after a big drop like we saw Friday, the market is higher by 19% one year later. There is more pain to come in the short-term, but smart investors will pick their spots carefully to take advantage of what's likely coming next.
If you're a member in good standing of the Intrepid Dip-Buyers Club, and you believe in probability and history, then you should buy this dip with both hands. For the rest of us, it's lookouts below.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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