For well over a century, the stock market has served as the premier wealth creator for investors. Though other asset classes, such as real estate, Treasury bonds, gold, silver, and oil, have increased in nominal value, nothing has come particularly close to matching the annualized return that stocks have brought to the table for more than 100 years.
But just because stocks have demonstrated they're a bona fide long-term moneymaker, it doesn't mean equities get from Point A to Point B in a straight line.
In April, the mature stock-driven Dow Jones Industrial Average (^DJI 0.95%), benchmark S&P 500 (^GSPC 1.33%), and growth-oriented Nasdaq Composite (^IXIC 1.59%) showed that markets can, indeed, move in both directions.
Image source: Getty Images.
Over the period of one week, the S&P 500 logged its fifth-steepest two-day percentage decline since 1950, its 12th-biggest four-day percentage drop over 75 years, and its largest single-session point gain since its inception. In fact, April 9 marked the largest respective nominal point advances for the Dow Jones, S&P 500, and Nasdaq Composite since they were incepted.
Volatility of this magnitude is exceptionally rare -- but when it does occur, it often leads to outsize returns for long-term-minded investors. One such rare event just triggered with Wall Street's benchmark index, and it's historically correlated with jaw-dropping future stock returns.
Multiple catalysts put Wall Street on edge in April
But before looking to the future, it's important to understand the foundation from which the future will be built. The historic volatility exhibited by the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite in April derived from multiple sources -- many of which aren't going to fade from center stage anytime soon.
At the top of the list is President Donald Trump's tariff and trade policy. On April 2, after the markets had closed for the day, Trump unveiled a 10% global tariff and introduced dozens of higher "reciprocal tariff rates" on countries that have traditionally run adverse trade imbalances with America. The unveiling of these tariff rates is what initially caused Wall Street's major stock indexes to briefly crash.
On April 9, the president initiated a 90-day pause on all reciprocal tariffs, save China. Less than five weeks later, the U.S. and China also announced a plan to slash most of their reciprocal tariffs for 90 days. The initial 90-day pause announced on April 9 is what coincides with the largest nominal point gains for all three major stock indexes in their respective histories.
This tariff story is far from over. While a small number of trade deals have been announced by the Trump administration, approaching this on a country-by-country basis is going to be painstakingly slow. It also makes it virtually impossible for investors to forecast what's going to happen more than a few days in advance.
But it's not just tariffs that wreaked havoc on Wall Street.
S&P 500 Shiller CAPE Ratio data by YCharts.
For instance, the stock market entered 2025 at one of its priciest valuations when back-tested more than 150 years. The S&P 500's Shiller price-to-earnings (P/E) ratio, which is also referred to as the cyclically adjusted P/E Ratio, or CAPE Ratio, peaked at almost 39 in December 2024, and ended May 20 at a multiple of 36.51. For context, the average Shiller P/E since January 1871 is 17.24.
The issue isn't so much that the Shiller P/E is more than double its historic average (although this isn't helping). Rather, it's the historical correlation between a Shiller P/E north of 30 and seemingly inevitable downside. The five previous occasions when the Shiller P/E topped 30 since 1871 were eventually followed by declines of at least 20% in one or more of Wall Street's major stock indexes. In short, extended valuations tend to be a harbinger of significant downside for stocks.
Investors have also been concerned about rapidly rising Treasury bond yields. A noticeable uptick in yields has the potential to boost borrowing costs for consumers and businesses alike. It may also portend an increase in the prevailing rate of inflation, which is widely expected by economists in the wake of Trump implementing global tariffs.
To round things out, but also build on the previous point, Moody's recently downgraded the United States' credit rating one level from the highest possible (AAA) to AA1. While this downgrade simply follows suit with other credit-rating agencies, it confirms the uneasy ground the U.S. economy is on at the moment.
Image source: Getty Images.
Stocks may have a green light to rocket higher
Though the Dow Jones, S&P 500, and Nasdaq Composite are rife with headwinds, all three indexes have also bounced noticeably off of their 2025 lows. Neither the Dow Jones Industrial Average nor S&P 500 are in correction territory any longer. Meanwhile, the Nasdaq dipped into a bear market in April (its first since 2022) and now sits less than 1,000 points away from reaching a fresh all-time high.
These wild gyrations point to one of the odder quirks of investing on Wall Street: When things appear most dire is often when the biggest gains can be made.
In many instances, the S&P 500's largest single-day advances are bunched in very close proximity to the broad-based index's worst single-session performances. These top performances also tend to occur with increased frequency during bear market and near-bear market declines (i.e., 15% to 19.9% drops).
Recently, the S&P 500 has come roaring back to life -- and investors who love a good correlation have taken notice.
According to data aggregated by Creative Planning's Chief Market Strategist Charlie Bilello, the S&P 500 rallied by 19.6% (4,983 to 5,958) between April 8, 2025, and May 16, 2025. It marks the 15th time since 1950 that Wall Street's benchmark index has gained at least 19% over 27 trading days. Yes, this is a bit of an arbitrary number, but play along.
The S&P 500 is up over 19% in the last 27 trading days, one of the greatest comebacks in market history. $SPX
-- Charlie Bilello (@charliebilello) May 17, 2025
Video: https://t.co/zvmjFV4imN pic.twitter.com/xwVxWCvWjR
Bilello tracked the performance of the previous 14 times the S&P 500 rallied between 19.8% and 30.2% over 27 trading sessions and outlined the total returns, including dividends, of the index spanning seven timelines (ranging from three months to five years). All told, Bilello offered 98 points of total return data for the S&P 500 following these rare events.
Bilello's data set shows the S&P 500 was higher in 97 out of 98 future time frames. The lone outlier was an 11% decline three months after a 20% bounce in the S&P 500 in late 2008, during the height of the Great Recession.
Meanwhile, the average gain after five years was 140% following these unique instances. For context, an annualized 10% return in the S&P 500, which is more in line with its long-term average, would have yielded a 61% five-year return. Historical correlations suggest that stocks have been given the green light to skyrocket over the next five years.
Although no data points or correlative events can, with 100% accuracy, guarantee directional moves in the stock market, the nonlinear nature of stock market cycles is an irrefutable truth that works in favor of long-term-minded investors.
According to Bespoke Investment Group, the average S&P 500 bear market since the start of the Great Depression in 1929 has lasted just 286 calendar days, which works out to about 9.5 months. In comparison, the typical bull market has endured for 1,011 calendar days (and this was as of June 2023), which is 3.5 times longer than bear markets.
Emotion-driven moves lower in the Dow Jones, S&P 500, and Nasdaq Composite continue to be surefire opportunities for long-term investors to pounce.
