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Feb. 25, 2020, 10:04 a.m. EST

The Dow tumbled more than 1,000 points on Monday and marked its third-worst point drop in history — here’s how the stock market tends to perform after big drops

The coronavirus-inspired tumble, by the numbers

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By Mark DeCambre, MarketWatch

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All 30

All 30 of the Dow Jones Industrial Average’s components finished lower, led by a whopping 7.8% decline in shares of UnitedHealth Group Inc . /zigman2/quotes/210453738/composite UNH +0.29% , marking its largest daily slide since Aug. 8, 2011. The fall in the health insurer exacted a toll of more than 160 points on the price-weighted blue-chip benchmark.

Negative for the year

Monday’s downturn has wiped out this year’s gains for the Dow (now -2.02%) and the S&P 500 (now -0.15%).

50-day

The S&P 500 breached its 50-day moving average for the first time since October. Technical analysts view moving averages as dividing lines between long-term and short-term bullish and bearish averages. The S&P 500’s 50-day moving average stands at 3,275.90 (see chart below).

The Dow also closed well below its 50-day moving average at 28,805.54, and slightly above its 200-day moving average at 27,224.03.

Worth a read : Apple’s stock falls below its 50-day moving average for first time in nearly 6 months

Read: Economists say Fed rate cut could come as early as March

Check out: Can stocks keep soaring as the U.S. dollar surges? What investors need to know

So how does the market tend to perform in this aftermath?

Despite all the relative carnage being endured by the market, stocks have a tendency to rebound after a hit of at least 2%, Dow Jones Market Data shows.

The past 10 times that the S&P 500 index fell by as much as 3%, for example, it declined 0.27%, on average, in the next trading session. However, the average performance improved dramatically in the following week, month and year, as shown in the table below:

Time frame Performance S&P 500 after it has fallen at least 3% in one day
Day after -0.27%
1 week after 1.83%
1 month after 2.08%
1 year after 12.97%

Meanwhile, the Dow has a similar record.

Time frame Performance Dow after it has fallen at least 3% in one day
Day after -0.19%
1 week after 2.07%
1 month after 2.93%
1 year after 12.52%

To be sure, how the market performs in the past is no guarantee of what it will do in the future. On top of that, an epidemic that gets out of control could lead to unprecedented results for the market and economy. During past epidemics, the market has eventually rebounded, however.

The researchers at Bespoke Investment Group also make the case that, over the past 11 years, declines of more than 2% for the S&P 500 have tended to see healthy rebounds, particularly when that daily slide happens on a Monday.

“Since March 2009, there have been 18 prior 2%+ drops on Mondays, and SPY has seen an average gain of 1.02% on the next day (Turnaround Tuesday),” the analysts wrote Monday. See attached chart:


Source: Bespoke Investment Group

Read: Opinion: If the coronavirus isn’t contained, a severe global recession is almost certain

Coronavirus update: Nearly 80,000 cases, more than 2,622 deaths, clusters emerge in Iran and Italy, and Iran

—Michael Destefano contributed to this article

/zigman2/quotes/210453738/composite
US : U.S.: NYSE
$ 304.85
+0.88 +0.29%
Volume: 6.25M
May 29, 2020 4:00p
P/E Ratio
21.34
Dividend Yield
1.42%
Market Cap
$289.11 billion
Rev. per Employee
$754,157
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Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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