What happens after BIG days?

**This post was written 10 November 2022 and all data notes are in reference to the market changes on or before that date.**

I have to start by saying that I can’t see around corners and I can’t predict the future.

But I like to look at data (for context and perspective) to make good forward-looking decisions.

Because investing, just like driving a car, is a forward looking endeavor.

We can’t do either one (successfully) by only looking in the rearview mirror.

So what does a Big Day like today tell us?

First …. what happened? 

• The S&P 500 gained +5.54% today, for its 15th best trading day since 1953

• The Nasdaq gained +7.35% today, for its 20th best trading day on record

Why it happened

• CPI figures came in lower, as expected, showing that prices are declining and inflation is heading in the right direction (down)

• Old economic data affecting averages is rolling off, being replaced by newer (though also outdated) figures making averages look better

Was it great news? No. But after ten months of terrible news, it's great to get some good news. 

The market essentially bet that it's good enough news for Jerome Powell to be pleased with his progress, hoping he'll finally crack a smile and go on vacation (eg rate hikes worked, let's not overdo it).

And finally … what happens next.

I still can’t see around corners but here’s what the data tells us….

Historically there’s been some downside (reversion to the mean) after big up days like today.

• The S&P has averaged a decline of -0.77% on the day after big 5%+ up days, and -1.73% over the next week. 

• Looking out longer term, S&P averaged +10.37% after six months, and +27.95% over the next year with positive returns 20 out of 22 times. 

Is this just a bear market rally? Or start of a new bull market?

We won’t know for another few weeks. Maybe a couple of months.

But historically, the data shows that the best days of a newly forming bull generally come close to the worst days of an ending bear.

 This is a good time to check your plan. Fine tune your investments. And keep moving forward.

There may be more downside in the near term, but I think the long term looks better today than it did six months ago.

As I've written in a recent blog post... I believe we're in a classic Cyclical Bear Market that's getting closer to its end than to its beginning. 

So what do we do after big days?

We keep calm and carry on.

Thanks for reading,

Roman

For my friends in compliance…Past events are not guarantees of future results. Please don’t make investment decisions based on this post and speak with your advisor. And just like you wouldn’t drive your car looking in the review mirror, please use your best judgement to navigate the road ahead.