Stocks were on track Friday to snap a three-day losing streak that may have felt worse to investors than history indicates it should, according to analysts at Bespoke Investment Group.
The S&P 500 SPX shed 1.3% in the three days following Monday's record close - its largest three-day decline since the three sessions ending Aug. 1. The Nasdaq Composite COMP retreated 1.8% in the three days following its own record Monday, while the Dow Jones Industrial Average DJIA saw a more modest 0.4% three-day slip.
"The severity of the declines this week has been extremely modest ... so if this type of 'pullback' makes you nervous, you're taking too much risk," the strategists said in a note.
What's more, history shows that a three-day retreat after an all-time high by the S&P 500 is a pretty common event, they highlighted (see below).
The chart above shows the S&P 500 going back to 1990, with the red dots illustrating every three-day losing streak that followed a record close. Bespoke noted that has happened three other times this year alone: in February ahead of the tariff tantrum, in late July and in mid-August.
They acknowledged that the data do show similar scenarios that have played out near market tops, but those are outnumbered by others that have been all but forgotten.
"Looking at other occurrences, yes, similar scenarios have played out right around major market tops, but there were dozens more that no one remembers anymore," they wrote. "The only way we'll know if this occurrence is a significant one is with hindsight, but the odds are that it's not."
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