Tuesday, December 6, 2022

On rare days, the S&P 500 can rise up to 10%, Wells Fargo finds. How to ensure you’re there for it

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“It was the best of times, it was the worst of times.” With those classic words, author Charles Dickens famously opened his historical novel “A Tale of Two Cities.”

He could easily have been describing the stock market.

A new Wells Fargo analysis looked at the best 20 days for the S&P 500 Index between August 1992 and July 2022. Almost half of them, the investment bank found, occurred during a bear market.

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In the Great Recession, on Oct. 28, 2008, the index shot up nearly 11%. On March 24, 2020, amid the coronavirus pandemic downturn, the S&P 500 rose 9%. (For perspective, the average daily return for the index over the last two decades is around 0.04%, according to Morningstar Direct.)

“During extreme market events, like the collapse of the credit market in 2008, or the beginning of the pandemic in 2020, the markets don’t digest this kind of news in an instant,” said Douglas Boneparth, a certified financial planner and founder of financial services firm Bone Fide Wealth in New York.

“We generally don’t know how it’s going to all play out,” he added. “This is why you see massive amounts of volatility and bad days clustered together with good days.”

The findings underscore the impossibility of timing the market, with the dips and upswings being so jumbled together.

“The odds of selecting the right days to be in or out of stocks are far less than winning the Powerball,” said Allan Roth, a CFP and founder of Wealth Logic in Colorado Springs, Colorado.

The market’s best days can have a long-term impact

Indeed, really good days in the market are incredibly rare.

Over the last 20 or so years, there have been only two days where the S&P 500 rose over 10%, Morningstar Direct has found. Meanwhile, the return was more than 5% on just 16 days.

“Missing those best days can impact long-term performance,” said Veronica Willis, an investment strategy analyst at Wells Fargo Investment Institute.

Here’s an example to prove Willis’s point: Imagine that on Oct. 13, 2008, you had a $300,000 investment in the S&P 500. The market rose 11.6% that day.

By the evening, you’d have gained close to $35,000.

It’s impossible to know when these infrequent jumps will take place, which is why experts recommended trying to staying consistently invested over decades.

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