Aug. 8 was the sixth worst day in recent U.S. stock market history, measured in terms of point loss on the Dow Jones Industrial Average (DJIA).
To encourage clients not to panic-sell on such days, you may find useful a recent analysis conducted by CXO Advisory Group. The firm defined a "big down day" as a four standard deviation decline, measured by daily returns of the DJIA. Prior to Aug. 8, there had been 59 such days since 1950. The analysis found that:
|- The average return on the next trading day after big down days was +0.36%.
- The average return for the week following big down days was +0.07%.
Emphasize to your clients that big down days are rare but do happen about once per year, on average. Investors should anticipate that they will happen and not knee-jerk sell when they do, because markets often bounce back or stabilize quickly. The CXO Advisory Group analysis is summarized here:
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