Stocks clawed back early losses Wednesday, with the Dow posting its best returns to start a quarter since 1938. Impressive, right? Traders might be tempted to think we’ve hit the low, and it’s all upside from here.
But before you get too excited, let’s have a frank discussion about market statistics.
Headlines that begin with “best” or “worst” are dominating financial media today, as they have many days this turbulent year. This is to be expected when volatility rears its head. The days with the best historical returns tend to cluster with the worst. It seems the market gods are simply flipping coins.
So how do you make sense of the markets without getting whiplash? The key is distinguishing true signals from all that noise. And while the public is laser-focused on price gyrations, most of those are just noise.
True signals appear rarely, and they can be tough to identify. Take the current price action. We started the week with a two-day gain, marking the first time the S&P 500 posted back-to-back gains of over 2.5% since the Global Financial Crisis in late 2008.
Back then, the big gains from the resulting bull market came substantially after a cluster of “signals” in 2008 — meaning this information may not have been that useful to investors trying to time the low.
