How the FTSE 100 has fared after big one-day falls

Sharp movements in the stock market can unnerve investors. And so we have seen again in recent weeks. Selling prompts selling and market falls follow.

The primary reason is a surge of concern about the strength of the US economy, with weak employment numbers posted on Friday increasing the jitters.

America’s fortunes and misfortunes soon spread elsewhere, with London markets tripping this week.

Monday’s 2.04% drop in the FTSE 100, while sizeable, is small in a historic context. For context, daily falls need to exceed 3.5% to make the top 40 chart of worst days so far this century.

But the broader context is that the FTSE 100 has been falling for over a week after moving close to 8400 at the end of July. Monday’s close of 8008 represents a fall of nearly 5% from that peak.

At such times, it is worth reminding ourselves that rash decisions made during market stress can lead to regret. Or as the 93-year-old billionaire investor Warren Buffett puts it:

‘Be fearful when others are greedy. Be greedy when others are fearful.’

There’s more on this in our managing investment volatility section.

The data is also worth considering. We have compiled total returns (which includes income reinvested) that have followed the 10 worst days for the FTSE 100 since the start of the century.

The worst-day dates are peppered around times of crisis - the outbreak of Covid in 2000, the global financial crisis of 2008, and the post-dotcom bubble years of 2001 and 2002.

What becomes apparent is that the Footsie has mostly registered decent gains after the biggest single-day sell-offs. Even when this wasn’t the case - in the three years after 9/11 in 2001 - it still managed a decent gain over five years, returning 45.7%.

The returns of the past, of course, may not be repeated in future. Investors should also consider the impact of investing costs. 

Source: Fidelity International; Refinitiv.

If nothing else, market wobbles provide a reminder of the ups and downs stock market investors should expect. This may be particularly uncomfortable for those who began investing in the past 15 years; they will not have seen any prolonged bear markets in that timeframe.

Market jitters also offer are a chance to evaluate whether your long-term plan - your original reasons to invest - still stand. They’re also a test of whether market volatility makes you unduly stressed. You need to be happy with the level of risk you're taking on an ongoing basis.

A financial adviser can be invaluable in helping you navigate these decisions.

In the meantime, markets will continue to evaluate the many variables that influence their value - the prospect for economies, the future of interest rates, the outlook for company profits, and so on.

With that in mind, investors could heed the words of Peter Lynch, a high-profile fund manager with Fidelity during the 1970s and 1980s.

‘You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.’

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.