Sometimes, the sharper the fall, the quicker the rebound.

It’s a miserable start to the week for equity investors globally as tremors from the Trump tariffs continue to reverberate through markets.

S&P 500 fell 0.2% on Monday follow a decline of 10.5% over just the previous two sessions — the biggest such slide since the onset of the pandemic in March 2020.

What can history tell us about what may happen next after that selloff?

In a new note published Sunday, Truist market strategists Keith Lerner and Jake Reid ran the numbers.

Their key takeaways were that such huge two-day market drawdowns are often followed by significant moves up or down over the next weeks. Short-term market returns, therefore, tend to be mixed. However, the probability of markets climbing increases significantly as the time horizon expands.

Let’s drill down into the details.

Previous periods containing mammoth two-day declines were the 1987 crash, the 2008 great financial crisis, and the COVID-19-related turmoil in 2020, as the table below shows.

From this, the Truist team made three observations.

Volatility clusters: Big down days don’t typically occur in isolation, they noted. “History shows that several of the S&P 500’s largest two-day declines were followed by some of the biggest two-day increases over the next 30 days (but also more down days).”

Short-term returns are mixed: The likelihood of the stock market rising significantly over the next few months following big two-day selloffs is mixed. In some cases, particularly in the fall of 2008, there was still a decent amount of downside, they noted.

The longer time horizon increases the probability of gains: As the table below shows, over the longer term, the returns improved markedly. That happened quicker after the initial two-day decline, such as after Black Monday.

Source: Truist

But what if the market’s current plunge presages a recession? Stocks bounced back quickly after Black Monday because, at the time, that was not the market’s reason for the crash. But the damage can be prolonged if investors reckon economic contraction will clobber corporate earnings.

The Truist economics analysts saw a 50/50 chance that the Trump tariffs would cause a recession in the U.S., with the probability rising the longer the trade levies remain in place.

Historically, the median S&P 500 decline around recessions is 24%, the Truist team noted. On that basis, the S&P 500’s current pullback of 17% since late February suggests the market is pricing in roughly a 60% to 70% chance of recession, they added.

“The glass half empty view is the market has further downside potential if a recession materializes, and this could be a worse than the ‘typical’ recession,” Truist said. “The glass half full view is the market is already pricing in a decent amount of the recession risk relative to the complacency at the February highs. Also, once markets find their low during a recession, the snapback tends to be sharp.”

So, what should investors do? One thing to recognize is that from a technical perspective, based on where futures suggest the S&P 500 will trade on Monday, the index is nearing a 50% retracement of the 2022 to 2025 bull market, which overlaps with the previous peak in 2021. “This will be looked to as a potential near-term support level,” Truist said.

Source: Truist

Truist said its message since February has been to adopt a more cautious stance, though given how much markets have now declined, it’s not the time to become more negative — at least not in the short term.

“Markets are now at least better discounting some of the uncertainty, and the bar for positive surprises has been reset lower. Thus, there is a risk of further market downside, but also a little bit of good news could go a long way,” they concluded.