Global markets saw a bloodbath yesterday, and the mantra we’re repeating is “don’t panic.” By panic, we mean selling stocks. It can be hard not to panic if you haven't had much experience with such steep and sudden declines in the market. So, what happened? There’s a couple of possibilities why markets fell, but one trigger seems to have been Friday’s weak U.S. jobs reports, which suggested that the economy might be closer to a recession than people thought. But panic selling is almost never a good idea. Take March 2020, for example: The S&P 500 fell 34% in about a month, but anyone who sold then missed a huge recovery — the index has more than doubled since. Even after yesterday’s drop, markets are rebounding, with Japanese stocks up 10.2%, and the S&P 500 up by more than a percentage point. Data shows that individual investors, even Wall Street pros, struggle to beat the S&P 500 through active trading. That’s why experts like Warren Buffett recommend sticking to passively managed vehicles like S&P 500 index funds. In fact, it might be a good time to buy. Since 1980, the S&P 500 has typically returned 6% in the three months after a 5% drop, which is what we’re seeing now after an 8.5% decline from its mid-July peak.
