Stock Market Sell-Off: History Shows S&P 500 Rebounds After Big Drops

U.S. stocks were trading lower on Tuesday following the worst trading session of 2025, as investor anxiety over impending tariffs weighed on sentiment. President Donald Trump stated Monday that negotiations with Canada and Mexico had reached an impasse ahead of Tuesday’s tariff deadline.

Treasury yields also declined, with the 10-year yield at 4.16%, while markets overwhelmingly expect the Federal Reserve to hold interest rates steady in March.

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What Historical Data Says: Monday's market drop saw steep declines in the technology, energy and consumer discretionary sectors, making it the second-worst trading day of March on record.

However, per research from George Smith, portfolio strategist for LPL Financial, historical data suggests that such sharp declines have often been followed by stronger-than-average returns.

LPL Financial says that since 1950, the S&P 500 has experienced 608 single-day losses of more than 1.75%, averaging about eight occurrences per year. Despite their unsettling nature, these drops have historically presented buying opportunities.

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On average, the S&P 500 has gained 1.5% one month after a 1.75% or greater daily loss, outperforming the historical one-month return of 0.7%.

The outperformance extends over longer periods, with three-month, six-month, and one-year returns following such declines averaging 3.7%, 6.6%, and 12.2%, respectively?well above the historical averages of 2.2%, 4.5% and 9.2%. This suggests that while volatility remains a concern, past market patterns indicate a likelihood of recovery.

Price Action: As of Tuesday morning, the SPDR S&P 500 ETF Trust (SPY) is down 3.6% for the week, trading at $574.54.

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