The worst days in the stock market often present the best opportunities for investors to capitalize on Wall Street.
Over the past century, the annualized returns of stocks have outperformed all other asset classes. While commodities like gold, bonds, and real estate have shown positive annualized returns, stocks remain the primary creator of wealth among them.
However, achieving the highest annualized return does not come without periods of significant volatility. In the last eight weeks, the well-established Dow Jones Industrial Average (^DJI), the benchmark S&P 500 (^GSPC), and the growth-focused Nasdaq Composite (^IXIC) have all experienced dramatic fluctuations, noting some of their largest single-day point and percentage moves.
This is particularly evident with the S&P 500, which saw a 12.1% drop between April 3 and April 8, marking its 12th largest four-day decline by percentage over the past 75 years.
In times of increased volatility, investors often turn to historical data for insights into future movements of the S&P 500 and stocks in general. While no definitive tool can predict market movements, certain historical events have shown a strong correlation with directional changes in the S&P 500. The recent historic decline is one such event with a perfect record of forecasting subsequent index returns.
One of the key catalysts for the recent steep downturn in the S&P 500 is President Donald Trump’s “Liberation Day” tariff announcements. On April 2, Trump declared a broad global tariff of 10%, alongside a series of higher “reciprocal tariffs” targeting countries with unfavorable trade balances with the U.S. President Trump aims to increase U.S. tariff revenue, protect American jobs, and encourage manufacturing within the U.S., though the implementation of these tariffs presents complexities.
Despite a 90-day pause on most reciprocal tariffs, excluding those on China, the tariff policy risks affecting trade relations with China, the world’s second-largest economy, and other allies. Furthermore, the tariff strategy does not differentiate between output tariffs, which are placed on finished imported goods, and input tariffs, which apply to products used domestically. This approach could increase U.S. manufacturing costs, potentially making American products less competitive than imports.
Investors are also concerned about rising U.S. Treasury yields. The Trump administration anticipated that its actions would lower long-term Treasury yields, thereby encouraging business borrowing for expansion and innovation. However, with yields rising sharply, borrowing costs have increased.
According to the Atlanta Federal Reserve’s GDPNow model, the U.S. economy is projected to contract by 2.2% in the first quarter. Excluding quarters from the COVID-19 pandemic, this would be the largest organic downturn since the end of the Great Recession in 2009.
The combination of tariff-related business uncertainties and higher Treasury yields has significantly impacted equities.
Despite these challenges, historically significant declines in the S&P 500 have often been advantageous for long-term investors. Analysis by Creative Planning’s Chief Market Strategist Charlie Bilello reveals that between 1950 and 2025, the S&P 500 experienced 15 four-day declines ranging from 11.5% to 28.5%, notably during events such as the 1987 Black Monday crash, the 2008 Great Recession, and the 2020 COVID-19 crash.
Historical data shows that after these sizable declines, the S&P 500 consistently achieved higher total returns, including dividends, one, three, and five years later, with a 100% success rate in recovery.
Bilello’s analysis highlights that the average total returns following the previous worst four-day declines in the S&P 500 were 33.8% one year later, 49% three years later, and 112.1% five years later. Given that the long-term annualized return rate for the S&P 500 is around 10%, these market downturns often represent the best opportunities for investment on Wall Street.
Further analysis by Bespoke Investment Group compared the duration of bull and bear markets in the S&P 500 from the Great Depression through June 2023. They found that, on average, the 27 bear markets lasted 286 calendar days, or roughly 9.5 months, while the typical bull market persisted for 1,011 days, about 3.5 times longer than the average bear market.
Despite the temporary fear induced by declines in the Dow, S&P 500, and Nasdaq, they often prove to be beneficial opportunities for investors who are patient and have time on their side.
