Over the last century, no asset class has come particularly close to rivaling stocks in the annualized return column. While holding commodities like gold, investing in bonds, or buying real estate have all generated positive annualized returns, stocks have been the bona fide wealth creator of the bunch.
However, generating the highest annualized return among all asset classes doesn't come without bouts of volatility.
Over the last eight weeks, the mature stock-driven Dow Jones Industrial Average (^DJI 0.59%), benchmark S&P 500 (^GSPC 0.63%), and growth-fueled Nasdaq Composite (^IXIC 0.59%) have been on nothing short of a roller-coaster ride. Recently, all three indexes logged some of their largest single-day nominal point and percentage moves in their storied histories.
Image source: Getty Images.
This is especially true for the widely followed S&P 500, which between April 3 and April 8 -- a span of four trading sessions -- shed 12.1% of its value. Looking back 75 years, this marked its 12th biggest four-day decline, on a percentage basis.
When volatility becomes heightened on Wall Street, investors often look toward historical data points and events for clues as to what might happen next for the S&P 500 (and stocks in general). Even though there isn't a forecasting tool that can guarantee what'll happen next, there are a few events that have strongly correlated with directional moves in the S&P 500. The historic decline that just occurred is one such instance that has, thus far, offered a 100% success rate of predicting future index returns.
Why did the S&P 500 cliff-dive over a four-day period?
But before digging into the data, it's imperative investors understand the catalysts that incited one of the steepest four-day downturns in the S&P 500 since 1950.
At the top of the list of uncertainties driving equities lower is President Donald Trump's "Liberation Day" tariff announcements. On April 2, Trump announced a sweeping global tariff of 10%, along with a series of higher "reciprocal tariffs" on countries that have traditionally run adverse trade imbalances with the U.S.
On paper, the president's goal is simple. He wants to raise additional revenue for the U.S. from tariffs, protect American jobs, and encourage both U.S. and foreign-based businesses to manufacture their products targeted at Americans in the U.S. But implementing sweeping tariffs isn't as cut-and-dried as you might think.
SNPINDEX: ^GSPC
Key Data Points
Even though Trump instituted a 90-day pause on most reciprocal tariffs (sans China) on April 9, a tariff-driven trade policy runs the risk of worsening trade relations with the world's No. 2 economy (China), as well as our allies.
Furthermore, the president's tariff policy doesn't differentiate between output and input tariffs. An output tariff is a duty placed on a finished imported good, whereas an input tariff is placed on a product used to manufacture a good domestically. Input tariffs can drive up the cost of U.S. manufacturing, which might make American-made products less cost-competitive with those being imported from beyond our borders.
Investors are also clearly worried about rapidly rising U.S. Treasury yields. The Trump administration had been hoping its actions would drive down long-term Treasury yields, which tends to encourage businesses to borrow for the purposes of hiring, acquisitions, and innovation. But with Treasury yields rocketing higher in recent weeks, it's becoming costlier to borrow money.
According to an April 16 update from the Atlanta Federal Reserve's GDPNow model, the U.S. economy is forecast to contract by 2.2% during the first quarter. Excluding the COVID-19 quarters, this would be the biggest organic downturn for the U.S. economy since the latter portions of the Great Recession (Q1 2009).
This combination of tariff-related uncertainty on U.S. businesses and higher Treasury yields was responsible for walloping equities.
Image source: Getty Images.
Historically large declines in the S&P 500 are blessings in disguise for long-term investors
With a clearer picture of what precipitated the 12th largest four-day decline for the S&P 500, let's now dig into the details of what history says will happen next for this storied index.
Based on data collected by Creative Planning's Chief Market Strategist Charlie Bilello, Wall Street's most followed index has endured 15 four-day declines ranging from 11.5% to as much as 28.5% between 1950 and 2025. Many of these declines correlate with the Black Monday crash in 1987, the Great Recession in 2008, and the COVID-19 crash in 2020.
But what's more important than where the S&P 500 has been is where it's headed next.
As you'll note in the post below on social media platform X, Bilello calculated the forward total returns, including dividends, of the broad-based S&P 500 at the one-, three-, and five-year marks following each of these outsize four-day declines. The S&P 500 was higher, on a total return basis, one, three, and five years later a cool 100% of the time.
At last Tuesday's close, the S&P 500 was down 12.1% over the previous 4 trading days, the 12th biggest 4-day decline since 1950.
-- Charlie Bilello (@charliebilello) April 14, 2025
What has happened in the past following the biggest 4-day declines?
Video Discussion: https://t.co/YYVlqL4aw9 pic.twitter.com/lEhXWsGkWX
Aside from cliff-dive events in the S&P 500 being a historical precursor to future upside, these events have almost always been followed by periods of supercharged investment returns. The previous 14 worst four-day declines in the S&P 500, on a percentage basis, produced average total returns of:
- 33.8% one year later.
- 49% three years later.
- 112.1% five years later.
For context, the long-term annualized return rate for the S&P 500 is around 10%. This means the stock market's worst days are often the absolute best days to put your money to work on Wall Street.
To add fuel to the fire, the analysts at Bespoke Investment Group compared the length of every bull and bear market in the S&P 500 from the start of the Great Depression in September 1929 through June 2023. What they found was a night-and-day difference.
On average, the 27 S&P 500 bear markets endured for only 286 calendar days, or roughly 9.5 months. On the other hand, the typical bull market entrenched itself for 1,011 calendar days, which is 3.5 times longer than the average bear market.
While eye-popping declines in the Dow, S&P 500, and Nasdaq can be temporarily scary, they're undeniable blessings in disguise for investors with time on their side.
