What hurts more: missing the best or staying for the worst?
SPY•U.S. indexes advanced more than 2% on Monday, with the Nasdaq up about 2.5%, as a Wells Fargo Investment Institute study argued that investors may benefit from missing both the market’s best and worst days but said identifying them in advance is difficult.
1. Timing market swings
The Wells Fargo Investment Institute’s global asset allocation strategy team examined the risks of missing the market’s strongest days versus suffering its weakest days. It concluded there is “some benefit to missing both the best and the worst days,” but said the strongest and weakest sessions often cluster together, making them difficult to separate.
2. Volatility and recoveries
Nine of the S&P 500’s 10 strongest one-day percentage gains occurred during recessions, and six also coincided with a bear market. During the eight trading days from March 9 to March 18, 2020, three of the market’s strongest 30 sessions and five of its weakest 30 occurred. Over the past 30 years, the S&P 500 gained a median 24% from its trough to the date it regained its previous high.
3. Stay disciplined
The strategists said moving to cash can require difficult decisions about when to sell and when to reinvest, and that trading costs and taxes can reduce potential benefits. They favor tactical asset-allocation adjustments based on expected relative performance over the next six to 18 months, while maintaining long-term market participation through diversification and rebalancing.
