MW Is the party over on Wall Street? Not necessarily.

By Mark Hulbert

Why are so many investors surprised that the stock market has dropped since last Wednesday?

It's not unprecedented for the stock market to drop after hitting a new all-time high - as it has done since last Wednesday, when the Dow Jones Industrial Average DJIA hit 48,254.82. It closed Monday of this week at 46,590.24, more than 1,600 points lower.

It's a sign of Wall Street's irrational exuberance that many think it's even worth mentioning that the market doesn't always respond to a new high by rising even more.

The charts below place the stock market's recent behavior in a historical context. The first one focuses on all bull market tops since 1900, courtesy of the bull-and-bear market calendar maintained by Ned Davis Research. Though it's way too early to conclude that last Wednesday's new Dow high was the top of the bull market, it's also premature to declare that it wasn't.

As you can see, the DJIA's return since last Wednesday is unexceptional relative to its returns immediately after past bull-market tops. From the perspective of this chart, the market's decline since last Wednesday is therefore notable only to those who think the stock market should always go up.

For example, over the first three trading sessions following the top of the internet bubble in early 2000, the DJIA dropped nearly the same amount as it has since last Wednesday. The same is true of the first three days following the bull market top in August 1987. There were two bear markets in the 1930s that began with three-day drops of over 4% each.

The next chart focuses more broadly on all days since the Dow was created in 1896 on which the index hit a new all-time high - more than 1,500 of them. This larger subset contains the all-time highs that were the subject of the chart above, plus all other new highs that did not represent the end of a bull market. Once again, the three trading sessions since last Wednesday do not stand out.

Over the three trading sessions subsequent to all new highs since 1896, the DJIA fell 43.1% of the time. In contrast, subsequent to all three-day periods since 1896, the DJIA fell 45.7% of the time. The difference between these two percentages is not significant at the 95% confidence level that statisticians typically use when assessing whether a pattern is genuine. These data show us both that it's not unusual for the market to fall after hitting a new high and that the probability of a decline does not go down following a new all-time high.

Sentiment at market tops

One of the reasons that many investors are surprised by these historical comparisons is that market tops occur when they least expect a bear market to start. We know this not only from first principles of human nature, but also based on my auditing firm's measurement of stock-market-timer sentiment.

Consider these timers' average recommended equity-portfolio exposure, among both those who focus on the broad stock market (as measured by the Hulbert Stock Newslettrer Sentiment Index, or HSNSI) and those who concentrate on the Nasdaq market in particular (the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI). My firm has been calculating these indexes daily since 2000. On average, they were approximately twice as high on the days of bull market tops than they were on all other days.

That helps put today's exuberance in perspective. The HSNSI last week was higher than 99.4% of daily readings since 2000, representing a near-record level of exuberance. The HNNSI recently was higher than 98.3% of daily readings since 2000. No wonder so many have reacted to the market's big drop since last Wednesday with incredulity.

The bottom line? We have no way of knowing whether last Wednesday represented a bull market top. But the market's drop since then is hardly unprecedented.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

-Mark Hulbert

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November 18, 2025 09:08 ET (14:08 GMT)

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