Monday’s trading session was a bloodbath for the market as all major indices slid more than 3%, but if history is any indication, Tuesday might prove to be a different story entirely.
According to Bespoke Investment Group, Monday was the 19th time the S&P 500 has shed more than 2% on a Monday, going back to March 2009. In the prior instances, following a hefty slide the index has, on average, returned 1.02% the next day as these drops have “historically been bought with a vengeance in the near term,” the firm said.
Bespoke found that in 17 out of the 18 prior instances the S&P 500 also had a positive return over the subsequent week, with an average gain of 3.16%. Over the next month, there was an average gain of 6.08%.
Slicing the data even further, Bespoke found that when the S&P 500 drops more than 1% on Friday and more than 2% the following Monday — as the index has currently done — Tuesday’s gain is, on average, slightly higher at 1.5%. The following week’s gain stands at 3.98%, on average, with the subsequent month’s gain coming in at 6.47%.