U.S. stocks hit another round of all-time highs at the end of September.
Then, last week, the bottom fell out.
This was a quick and sharp decline. Not only that, but U.S. stocks fell six days in a row through last Thursday. This type of fall over several consecutive days has only happened 1% of the time going back to 1950.
Importantly, history says this extreme isn’t worth losing sleep over. In fact, the S&P 500 could jump 11% over the next year as a result.
Let me explain…
A string of consecutive up or down days usually points to an acceleration in the overall trend. That means when we see lots of down days, it usually signals more pain ahead. But that’s not always what happens.
In the case of U.S. stocks, history tells us something quite different…
A string of consecutive down days isn’t a warning sign for more losses… Rather, it means a rally is likely.
You see, when the S&P 500 falls six or more consecutive days, it often goes on to crush the typical return for stocks in the months that follow.
Again, this string of down days ended last Thursday. It was a painful sell-off. Take a look…
After months of moving higher, the market took a dive last week. But again, history says not to worry. The fall likely won’t last long.
Since 1950, buying after strings of six consecutive down days would have led to profits a year later 76% of the time. The typical gain by then is a solid double-digit profit. Take a look…
U.S. stocks have been a fantastic long-term investment… returning roughly 8% a year (not including dividends) since 1950. But buying at times like right now led to much better returns.
Similar circumstances led to 3.5% gains in three months, 5% gains in six months, and a solid 11% gain over the next year.
These are impressive returns and solid outperformance. It’s also worth noting that this 11% upside potential is for the broad market. As the “Melt Up” unfolds, certain stocks and sectors could soar dramatically higher.
So sure, I know the recent fall feels scary. But history says we shouldn’t hit the panic button just yet. This is likely just another blip on the way to newer and higher highs. And as Steve said earlier this week, we know that a bit of volatility is normal in a Melt Up environment like today.
History says this recent sell-off isn’t something to worry about. It’s something to embrace. It could lead to double-digit profits over the next year… So stay long.
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Source: Daily Wealth