Investing

The S&P 500 suffered quite a rapid 5 percent drop; history shows buying the dip is no sure bet

Key Points
  • The S&P 500 fell more than 5 percent just six trading days after reaching an all-time high.
  • CNBC analysis using Kensho found the index trades positive just 60 percent of the time six days after such a quick sell-off.
  • It also takes the market some time to regain its footing.
  • Equities kicked off the new year ripping higher, with the major averages notching fresh all-time highs.
  • But concerns of rising inflation have recently pushed interest rates to multiyear highs, sending jitters down Wall Street.
Here are the stocks taking the S&P lower
VIDEO0:5100:51
Here are the stocks taking the S&P lower

Stocks tend to rise after declines as swift as we've seen in the last week, but it is far from a sure thing.

The has fallen more than 5 percent just six trading days after reaching an all-time high. CNBC analysis using Kensho found the index trades positive just 60 percent of the time six days after such a quick sell-off.

So a little better than a coin flip.

The Dow Jones industrial average rises just 62 percent of the time, while the Nasdaq composite posts gains 56 percent of the time, according to Kensho. The Dow, S&P 500 and Nasdaq average returns of 0.59 percent, 0.75 percent and 0.84 percent, respectively.

Equities kicked off the new year ripping higher, with the major averages notching fresh all-time highs. But concerns of rising inflation have recently pushed interest rates to multiyear highs, sending jitters down Wall Street.

Investors worried that higher inflation would lead the Federal Reserve to tighten monetary policy faster than the market expects. Those concerns sent stocks into their current tailspin.

But the market doesn't yet regain its footing a month after such a fast decline either.

The S&P 500 and Dow both trade positive just 64 percent of the time a month after the S&P 500 sheds 5 percent in a six-day period, the data shows. The Nasdaq, meanwhile, trades positive just 57 percent of the time in that period. In that time period, the indexes average returns of at least 1.5 percent.

After three months, though, the market regains its swing.

The S&P 500 and Dow trade positive 67 percent and 70 percent, respectively, three months after the S&P 500 pulls back 5 percent in a six-day period. The Nasdaq trades positive 66 percent of the time.

The indexes also average returns of at least 4 percent three months after the S&P 500 declines 5 percent in six trading days.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

WATCH: Dow, S&P break through 50-day moving average

Dow, S&P break through 50-day moving average
VIDEO3:1003:10
Dow, S&P break through 50-day moving average