In this Era of QE, central banks stand at the ready to pump more capital into the system should anything threaten the stock markets. We have seen this with respect to all major issues include the softening global economy, the trade wars, geopolitical tensions, tightening the Fed's balance sheet, Brexit, and now the coronavirus. Since QE began in late 2008, when the S&P 500 has correction more than 2% in one day, you can see from the table below that in all but one case, it was higher a week then a month later.
Keep in mind that in non-QE markets, a big one day drop can lead to even deeper drops in subsequent days such as in 1987 and 1929. In all cases since 1920, there was preceding material weakness in the price/volume action of major averages which enabled one to get safely to the sidelines before the massive drop.
In the present case, the market dropped sharply off all-time highs without any prior material weakness in the market averages. If 100 years of history repeats, markets should likely be higher a week to a month from now. That said, there is always the possibility of a first time, so always heed your stops.
Market Lab Report - Market action after big one-day drops in the markets
|Published:||25 Feb 2020 06:23 ET|
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