The stock market finally remembered it was October and gave investors an early Halloween scare on Monday. Declines were steepest for the Dow Jones Industrials (^DJI 0.62%), but the S&P 500 (^GSPC 0.55%) and Nasdaq Composite were still down between 1.5% and 2%. The Dow had been down more than 900 points at times during Monday's trading session.

Today's stock market


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Data source: Yahoo! Finance.

Investors have been amazed at the extent of the rebound in stocks since March, with the S&P 500 and Nasdaq having roared to new record highs in recent months. Yet there are some who believe that given the fundamental lack of progress in controlling the COVID-19 pandemic thus far, a more dramatic stock market drop would be warranted. For them, today's down move seems like a prelude to a larger and more extended decline that could take weeks or even months to play out.

This is hardly the best-case scenario

Back in February and March, investors panicked about the COVID-19 pandemic. As case counts soared and the economy shut down, market participants sent stocks crashing lower. In doing so, investors seemed to believe that things would never get back to normal.

It took a number of extraordinary measures to restore confidence, including unprecedented fiscal stimulus measures from the U.S. government and an extremely accommodative monetary policy stance from the Federal Reserve. Those measures proved sufficient to help the stock market recover from its losses and get people thinking more optimistically about the future.

U.S. Capitol building as seen from street level, just off-center.

Image source: Getty Images.

Inherent in that outlook, though, was the idea that the world had gone through the worst of the pandemic. Even as case counts remained stubbornly high in some areas of the U.S., it was tempting to think that a vaccine would appear in time to avoid any further trouble.

Unfortunately, that hasn't been the way things have worked out. In addition to U.S. COVID numbers reaching new record highs, the rest of the world is also seeing a resurgence of cases. Several countries in Europe and Latin America are watching their infection numbers spike higher, seemingly out of control. Renewed efforts to impose lockdowns and other social restrictions are facing more opposition as people grow tired of having their lives disrupted.

It all depends on how carried away investors choose to get

There's never any shortage of negative things that investors can focus on in order to justify a bear market move lower. On top of COVID-related news, the election will decide whether there are major changes not only in the White House but also on Capitol Hill. Anything short of a clearly decisive victory could spur protests and unrest among various constituencies, depending on who proves to be the winner.

There's nothing new about any of the things facing the market right now. There's always been a threat of new waves of coronavirus, and the 2020 election has been a predictable inflection point ever since the 2016 election.

The key question is whether investors choose to forego buying stocks at discounted levels after a minor pullback like today's. It was the unwillingness among just about everyone to invest in February that set the stage for that lightning-quick bear market, just as it was their decision to jump back into stocks en masse that allowed the subsequent recovery.

In hindsight, it'll be clear whether this was the beginning of a new bear market or just another day of forgotten stock market volatility. For now, though, investors will just have to wait and see.