Aug. 5, 2024, was the worst day for the stock market all year. Fears of a recession grew as unemployment rose. The S&P 500 SPX -0.21% fell 3% and the Nasdaq Composite COMP 0.00% fell 3.4% on that same day. The Dow Jones Industrial Average DJIA -0.63% fell 2.6%.
But small buyers did not panic that day, even though the market did.
New information from Vanguard, an asset manager, shows that 97.5% of investors on its website did not trade on August 5. 73% of those who did trade bought on the dip, while only 17% sold out of fear.
He said, “Even when bad news about the economy came out in the financial press, investors were much more likely to stick with their plans or buy at a discount than to panic sell.” Thomas De Luca is a senior researcher with the Vanguard Investment Strategy Group. “Being disciplined during times of market volatility is a good sign because it’s one of the best ways to tell if an investment will do well in the long run.”
The S&P 500 went up more than 10% from August 5 to the end of the trading day on September 24. This was a good move for small buyers. People who bought on the dip around this time may have made some of those gains. The S&P 500 hit new all-time highs in September, so they might still be ahead even if they didn’t. But small buyers would have missed the rally if they had sold.
Vanguard says that retail buyers are pretty optimistic about future stock market returns. This is on top of staying calm during the market turmoil. The asset manager found that small buyers thought the stock market would return an average of 6.2% in the year after August. Also, they thought there was a 4.4% chance that the stock market would crash in the next 12 months. A crash described by Vanguard as a drop of 30% or more.
It didn’t bother investors that the market went down for a short time or that the unemployment rate went up a bit, said Andy Reed, head of investor behavior studies at Vanguard. “Stable economic growth, falling inflation, and a strong market have made them feel positively pumped.”
In a survey, Vanguard defined a stock-market disaster as a 30% or greater drop and economic disaster as -3% annual GDP growth.
