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The Dow Jones Industrial Average suffered its worst day in more than six years…
The index fell 4.6% earlier this month. That one-day bloodbath ended the straight march higher in stocks last year. And it helped solidify the first correction in years.
If it spooked you, you aren’t alone. But stocks have quickly recovered. The “Melt Up” isn’t over yet…
The Dow is only a few percentage points away from new highs today… And history says it should reach them soon.
You see, stocks have a tendency to soar after big one-day falls like this one. It could mean gains of 16% over the next year.
Let me explain…
Corrections happen all the time – around once every two years.
So you don’t need to panic just because stocks dipped in recent weeks. Of course, lots of folks were more worried about how stocks fell.
They fell hard and fast.
Again, the Dow’s recent one-day loss is the worst we’ve seen since 2011.
But that kind of fall is also telling…
A one-day fall of 4.5%-plus is rare. It has only happened 29 times since 1950.
Even more interesting, these falls do not have a history of leading to further losses… It’s the complete opposite.
An impressive 23 of those 29 falls actually led to stock market gains over the next year. Said another way, you would have made money a year after these falls – 79% of the time!
That’s a fantastic batting average. And even better, you could have made good money by buying after these big one-day falls. Take a look at the returns that came after these occurrences…
The Dow has returned about 7% a year since 1950. But you would’ve done much better by buying after a one-day beating like we saw earlier this month.
After the Dow has fallen 4.5%-plus in a day, it has gone on to return 5% in six months and 16% a year later. That’s more than double the annual return for the index.
This has worked recently, too… The last time we saw a decline this size was August 2011. The Dow rallied a full 23% the year after that big move.
U.S. stocks have already recovered well from this month’s low. The Dow is up around 7% from its February bottom. But history says further gains – and new all-time highs – are likely ahead of us.
So please, stop worrying so much. The Melt Up is still in place. And double-digit upside is likely for stocks in the coming months.