A Historic Buying Opportunity?

Thursday’s decline of -4.84% in the S&P 500 is the 30th worst day in the market over the past 50 years. Through midday Friday, the two-day -9.8% decline is the 6th worst we’ve seen in that same time period. We are in rare territory with the likes of Black Monday in 1987, the great financial crisis in 2008-2009, and the Covid pandemic in 2020. History suggests that following one- and two-day declines of a similar magnitude, forward returns are not only strong but have a high probability of success even if a recession were to occur. The odds of that are higher now unless tariff policies change, though the market’s -16% peak-to-trough decline is already pricing in a 67% recession probability. While these moves are painful, the best buying opportunities arise during periods of extreme fear and uncertainty, or the point of maximum pessimism. Periods of extreme fear create gaps between stock prices and intrinsic value, a misalignment we seek to exploit over the long term. Historically, this approach has been rewarding to the Opportunity Equity Strategy’s performance. Following days in which the strategy has dropped -4% or more, forward average returns were +7% in 3M, +19% in 6M, +46% in 12M, and +62% in 24M with an >80% win rate in the 12M and 24M periods.

A single day decline of -4.84% in historical context. Thursday’s move lower in the S&P 500 is amongst the worst days seen since 1975. In fact, it’s the 30th worst day out of 12,420 trading days, putting it well within the 1st percentile of all days in 50 years. The two-day move of -9.8% (S&P 500 at $5,119 at time of writing) is even more rare and the 6th worst over the same time period. We’ve only seen worse one- and two-day moves of this magnitude during Black Monday in 1987, the great financial crisis in 2008 and 2009, and the Covid pandemic in 2020.

Buying at the point of max pessimism has been highly rewarded. Forward market returns following days like the ones we’re now experiencing have historically been strong. Following one day drops in the S&P 500 of -4% or more, forward average returns have been +2% in 1M, +7% in 3M, +13% in 6M, and +28% in 12M. Markets were up 86% of the time over the next year despite the fact that most of these instances corresponded with a recession. Forward returns following two day drops of -8% or more show a similar pattern. On average the S&P 500 rose +2% in 1M, +2% in 3M, +9% in 6M, and +29% in 12M. In these instances, markets were up 93% of the time over the next year.


The best buying opportunities arise during periods of extreme fear. Emotional and psychological fears often create gaps between stock prices and intrinsic value. Prices change far more rapidly than intrinsic value because they reflect recent history and near-term expectations, a misalignment that we seek to capitalize on. Historically, this approach has been rewarding to the strategy’s performance. Following days in which the strategy returns have dropped -4% or more, forward average returns have been +7% in 3M, +19% in 6M, +46% in 12M, and +62% in 24M. Instances where we’ve had a 15% or more drawdown over the trailing 30 day period, forward performance has been similar at +7% in 3M, +19% in 6M, +45% in 12M, and +68% in 24M.


Data Source: Bloomberg, Patient Capital Management.

Performance shown is being calculated without the deduction of fees and expenses a client or investor would have paid. For additional information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance.

The views expressed in this commentary reflect those of Patient Capital Management analysts as of the date of the commentary.  Any views expressed are subject to change at any time, and Patient Capital Management disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue.  These views are not intended to be a forecast of future events, a guarantee of future results or investment advice.  Because investment decisions are based on numerous factors, these views may not be relied upon as an indication of trading intent on behalf of any portfolio.

Past performance is no guarantee of future results.

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