The stock market's dramatic drop on Monday may scare some investors away from Wall Street for a while. But if history is any guide, it shouldn’t. According to the WSJ Market Data Group, there have been 131 sessions in the history of the S&P 500 with a 4 percent drop, as occurred on Monday. A month after a 4 percent drop, historically speaking, the S&P 500 is higher 54 percent of the time, and gains an average of 0.87 percent over that period.
The odds are only slightly better on a three-month basis—the return has been positive 56 percent of the time. But the gains are significantly higher, with an average advance of 6.11 percent, which would be enough to erase the day’s drop.
Six months after a 4 percent drop, the S&P is higher 63 percent of the time, gaining 7.31 percent over that period. Over the course of a year it is up an average of 16.48 percent, and it is positive in 62 percent of such periods.