(Forbes) The S&P 500 dropped 2.5% over trading last Friday. Taking that into account, is the S&P 500 likely to drop or rise today?
According to the Trefis AI engine, there is a:
- 26% chance S&P 500 will drop by 1% or more the day after a 2.5% drop
- 13% chance S&P 500 will drop by 1% or more the day after a normal day
Here, we define a normal day as one where the S&P 500 has moved less than 0.1% over the day.
We found something even more interesting from the Trefis AI Engine to calculate if S&P drops, what’s the chance it’ll rise. Turns out, chances of a 1% risea day after the index drops 2.5% or more are in fact higher than the chances of a 1% drop, as evident in these two results from the AI engine:
- 31% chance S&P 500 will rise by 1% or morethe day after a 2.5% drop
- 11% chance S&P 500 will rise by 1% or morethe day after a normal day
Notably, as you can see above, there is almost 3x more chance we will see the S&P 500 rise 1% of more today compared to a normal day.
That said, it is quite rare for the S&P 500 to lose 2.5% or more of its value on a single trading day. How rare? The Trefis Machine Learning Engine to calculate chances of S&P 500 drop or rise shows that there is a probability of just 1.2% that the S&P 500 drops 2.5% or more in a single day. In other words, the S&P 500 has historically dropped 2.5% or more on a single day once every 83 trading days – which is roughly once every 4 months, or about 3 times a year.
You might be thinking, “That doesn’t sound right. I am pretty sure the S&P 500 dropped by 2.5% more than once in the last four months.” But based on movements in the S&P 500 over the last 60 years, that is how likely this event is. Of course, there will be 4-month stretches when the S&P 500 sinks 2.5% or more in a day 2 or 3 or even 4 times, but then there will also be periods when it doesn’t do so at all.
