{"id":85160,"date":"2023-11-16T03:56:25","date_gmt":"2023-11-16T08:56:25","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/dont-be-fooled-huge-one-day-stock-rallies-are-more-common-in-bear-markets\/"},"modified":"2023-11-16T03:56:27","modified_gmt":"2023-11-16T08:56:27","slug":"dont-be-fooled-huge-one-day-stock-rallies-are-more-common-in-bear-markets","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=85160","title":{"rendered":"Don\u2019t be fooled: Huge one-day stock rallies are more common in bear markets"},"content":{"rendered":"
\n
<\/p>\n

<\/p>\n

\n

\n \u201c<\/span>One day does not a major uptrend make.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

Bullish stock investors should temper the enthusiasm with which they greeted the stock market\u2019s explosive rally in the wake of this month\u2019s better-than-expected report on inflation.<\/p>\n

That\u2019s because huge rallies are more likely to occur during bear markets rather than in major uptrends.<\/p>\n

\n

Consider the Nasdaq Composite
\n COMP
\n since its inception in 1971. Since then, according to a calendar of bull and bear markets maintained by Ned Davis Research, just under one quarter of all trading sessions \u2014 24.5%, to be exact \u2014 have occurred during bear markets. If huge one-day spikes occurred randomly across the calendar, you\u2019d therefore expect that just one quarter of them would occur during bear markets.<\/p>\n

That is not the case, as you can see from the accompanying chart. Take the 25 trading sessions since 1971 in which the Nasdaq Composite had its biggest one-day gains. Of them, 20 \u2014 or 80% \u2014 occurred during bear markets, more than three times the proportion you\u2019d expect on the assumption of randomness. A similar pattern emerges when we expand our focus to the 100 trading sessions with the biggest gains: 60% of them occurred during bear markets.<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n
<\/div>\n<\/figure><\/div>\n

The same general pattern also exists in the S&P 500
\n SPX
\n back to 1928 and the Dow Jones Industrial Average
\n DJIA
\n back to its creation in the late 1800s.<\/p>\n

There are three reasons why this otherwise surprising pattern actually makes sense:<\/p>\n