The stock market has experienced some of its most dramatic fluctuations in recent memory, with the S&P 500 (^GSPC 0.79%) taking a sharp dive after President Donald Trump's "Liberation Day" announcement of severe "reciprocal tariffs" targeting nearly every country. However, after the president’s announcement of a 90-day tariff pause, the market saw a massive rally, marking one of the biggest one-day gains for the S&P 500 in years.
So, with stocks bouncing back, is now the right time to buy on the rebound after the latest market meltdown? Let’s look at the history to find out.
The S&P 500, in its current form (with 500 companies), has been around since 1957. Over the years, the index has fallen sharply — often by similar or even larger percentages — 13 times, excluding the most recent decline.
But how often do rebounds after these sharp falls result in sustained upward momentum? The answer is: Not often. In fact, only twice in history did the market see a swift and lasting recovery after such a drop.
The most recent example occurred in 2020, when the COVID-19 pandemic triggered a massive sell-off. However, by late March, the S&P 500 started to climb back. By the end of the year, the index had completely recovered its losses, marking an exceptional recovery.
Similarly, in October 2018, after a significant drop, the S&P 500 rebounded strongly and maintained solid momentum throughout the following months.
Unfortunately, history shows that most initial rebounds after steep declines in the S&P 500 have been temporary. In some cases, the index bounced briefly before continuing to hover near its lows for months.
A prime example occurred in 1957, when the S&P 500 dropped sharply and then attempted a comeback. However, the index remained range-bound well into early 1958 before it began a more sustained recovery.
More notably, the dot-com crash in the early 2000s saw the S&P 500 plunge, only to bounce back several times in vain. The real recovery didn’t begin until 2003, and it wasn’t until May 2007 that the index fully recovered, a whopping seven years after the initial collapse.
Another recent example occurred in 2022, when the S&P 500 entered a bear market in June. After a brief rally in August, the index fell even further, and it wasn’t until late 2023 that it managed to fully regain its footing.
What can investors learn from the history of the S&P 500 after major sell-offs? The key takeaway is not to assume that a rebound after a sharp market decline will automatically lead to sustained growth. In fact, the index often experiences further volatility after an initial bounce.
However, there’s a more significant lesson: Long-term investing in the S&P 500 has consistently paid off. The best strategy for most investors has been to invest in the index through mutual funds or exchange-traded funds (ETFs) and hold on through the ups and downs. Those who used a dollar-cost averaging strategy have reaped some of the best long-term returns.
So, should you invest in the S&P 500 following the recent market volatility? If your investment horizon is five years or more, history suggests that the answer is a resounding “yes.” Despite short-term bumps, the S&P 500 has historically rewarded long-term investors who remain patient and committed.
However, before diving into the S&P 500, consider this: The Motley Fool’s Stock Advisor team has recently revealed what they believe are the 10 best stocks for investors to buy now — and surprisingly, the S&P 500 isn’t one of them. These 10 stocks are handpicked for their potential to deliver market-crushing returns in the coming years.
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Despite the market’s wild ride, history proves that long-term investments in broad market indexes like the S&P 500 often pay off. For those with a five-year or more investment horizon, buying stocks after a market pullback has traditionally been a winning strategy. But for those looking for even more significant returns, exploring handpicked stocks may be an even more rewarding path.
Credit: https://www.fool.com/investing/2025/04/12/should-you-buy-stocks-on-the-rebound-after-the-mar/
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