Yesterday's 2% Drop in the S&P 500 Isn't All That Rare

August 1, 2014 8:20 AM

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Yesterday’s 2% drop in the S&P 500 was painful for investors, but looking back at the historical data shows that it’s not a rare occurrence.

The market has been in a relentless bull market since it bottomed from the crash on March 9, 2009.  But in that time the S&P 500 has finished the day down 2% or more on 55 trading days or about 1 out of every 20 days the market was open.

Going back even further you can see that since 1950 the market finishes down 2% or more quite often:

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The S&P 500 has closed down 2% or worse in roughly 2 out of every 100 trading days while falling more than 1% almost 10% of the time. And almost 5% of all down days the market saw losses of 2% or more.

It’s also interesting to note from this data that on any given day the stock market is more or less a flip of the coin between rising or falling. On a daily basis the market was up 54% of the time and down 46% of the time.

Yet since 1950 the S&P 500 has compounded returns of 11.2% per year.

All of this is to say that large losses are inevitable in the stock market. It could be a sign of things to come or it could just be a natural phenomenon of a complex market.

The job for investors is to figure out whether the daily movements of the stock market matter for their portfolio or not.

Photo: Ahmad Nawawi

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