While no one knows for sure what will happen as the market continues to react to coronavirus developments, “history could perhaps strengthen the resolve of aggressive traders debating whether or not to jump into the market right now.” This according to a recent article in Barron’s.
Since the Dow Jones Industrial Average was created, it has dropped by more than 10% in one week just 17 times, the article reports—less than .3% of the time. “The good news for investors,” it explains, “is that after those rare events, stocks have tended to rise in the ensuing four-week and six-month periods.”
But buying the dip isn’t a sure thing, the article says, pointing out that market dips tend to “beget more bid dips” and fuel volatility.
According to Barry Bannister, Stifel’s head of institutional equity strategy: “The coronavirus is reminiscent of 1990 in terms of stock-market effect. A short, sharp, out-of-the-blue shock that, after the fact, proved to have been painful, but economically overrated.”
In 1990, the market dropped by 7.8% and dropped for six straight weeks during August, the article reports. Bannister notes, “the Fed had been cutting rates since June 1989, but accelerated the cuts in July 1990,” adding “The S&P 500 rallied back to the old high by [February 1991].”
The article concludes that Bannister’s historical example “isn’t quite the same as a pandemic. But many events have knocked the Dow down, and more often than not, it bounces back quickly.”