The global spread of the coronavirus has pushed the S&P 500 down 3% on consecutive days.
That is a fairly rare occurrence for markets with only 15 occurrences of consecutive down days of that magnitude since the Great Depression.
When these types of consecutive down days occur outside of economic recessions, markets have tended to recover and move sharply higher over the next year.
With the epidemic slipping towards a pandemic, the extent of economic damage remains unknown. Markets are selling rich valuations and pricing in negative outcomes.
After Monday’s coronavirus-induced sell-off, I published A History of -3% Down Days. I noted for readers that -3% sell-offs are not uncommon, occurring on 1.4% of trading sessions over a ninety-plus year U.S. stock market history. I also noted that daily sell-offs this severe tend to cluster in risk-off environments. In that article, I depicted the number of times the market fell more than 3% on a trading day by calendar year. Concentrations during the Great Depression, and more recently the Great Recession, show that weak returns tend to congregate.
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