The scariest thing about a market selloff might be what happens after it.
Wall Street has some wonderfully strange expressions. Bulls. Bears. Falling knives. Witching hours. And, just in time for Halloween, perhaps the most gruesome of them all: The dead cat bounce.
Yes. That's really what it's called.
A dead cat bounce is Wall Street slang for a short-lived rally during a larger market decline. The market falls hard, suddenly bounces higher—giving investors hope that the worst is over—and then turns around and falls again. The rather gruesome expression comes from the idea that even a dead cat will bounce if it falls from high enough.
Charming, Wall Street.
But here's what makes the dead cat bounce so tricky: While it's happening, you don't know it's a dead cat bounce. That 5% rally could disappear tomorrow.Or it could be the first 5% of the next bull market. You only know which one it was after the fact.
And that creates a genuinely scary investing problem: How do you know whether a rally is just a bounce—or the beginning of the recovery?
You don't. And that's where investors can get themselves into trouble.
I'LL GET BACK IN WHEN IT'S SAFE
Picture this.
The market has fallen 20%. Your $500,000 portfolio is now worth $400,000. You've watched $100,000 seemingly vanish. The headlines are frightening. The experts are predicting what comes next. And your instinct is screaming: Get me out of here.
So you sell.
And for a moment, it feels good. The monster under the bed can't get you anymore. You're safely sitting in cash. And you tell yourself: I'll get back in when things settle down. Then the market rises 5%. You're suspicious.
Dead cat bounce.
Another 5%.
This can't last.
Another 5%.
I'll wait for the next pullback.
And suddenly something really scary has happened.The market has recovered without you.
THE MARKET DOESN'T RING THE DOORBELL AND YELL “TRICK OR TREAT”
The problem with waiting for the all-clear is that markets have an irritating habit of beginning their recoveries when everything still looks frightening. We saw a spectacular example during the 2025 tariff tantrum. The S&P 500 fell nearly 19% from its February high through April 8. Then came April 9. Following the announcement of a 90-day pause on many tariffs, the S&P 500 surged 9.5% in a single day. If you had $500,000 invested in the S&P 500, a 9.5% move represents about $47,500. Imagine selling the day before.
The problem is that on the morning of April 9, nobody rang your doorbell to tell you the recovery was starting. There was no flashing sign: THE BOTTOM IS IN. IT'S SAFE TO COME BACK OUT.
You had to be there already.
THE BEST DAYS CAN HIDE AMONG THE WORST
And here's the trick. Some of the market's biggest up days have historically occurred very close to its biggest down days.
J.P. Morgan looked at 20 years of S&P 500 returns and found that an investor who remained fully invested earned an annualized return of about 10.6%. Missing just the 10 best trading days reduced that return to roughly 6.4%. Even more striking: seven of those 10 best days occurred within about 15 days of one of the market's 10 worst days. That's what makes market timing so difficult.
The best days don't politely wait until the ghosts have disappeared. They can arrive while the headlines are still frightening, investors are still nervous and everyone is still wondering whether there's another monster around the corner.
SO WHEN DOES THE DEAD CAT COME BACK TO LIFE?
Suppose the market falls 20%.
Then it rallies 5%.
Dead cat bounce?
Maybe.
Or maybe you just witnessed the first 5% of the next recovery. The problem is that you generally won't know which one it was until later. And by the time the recovery no longer looks scary, you may have missed a meaningful part of it. That's why getting out of the market isn't one decision. It's two.
You have to decide when to sell. And then you have to decide when to buy again.
Getting scared out is easy. Knowing when it's safe to come back in is much harder.
THE EDIT
There will always be something scary lurking in the markets.
A recession.
Inflation.
A geopolitical crisis.
Tariffs.
The Fed.
The next thing we haven't even thought of yet.
But selling doesn't make risk disappear. It simply changes the costume.
You've exchanged the risk of watching your portfolio fall for the risk of watching the market recover without you. So the next time markets swoon, don't ask: Is the market going lower?
Ask: Has anything about my financial plan actually changed?
Has your goal changed? Your time horizon? Your need for the money? Your appropriate asset allocation? If those things haven't changed, be careful about making a long-term investment decision because the market suddenly looks scary. Because eventually, the market will bounce. Maybe it's a dead cat bounce.
Maybe it's the beginning of the next recovery. You won't know in real time.
And sometimes the best action is none at all.
When markets swoon:
Stay disciplined. Stay invested. Stay calm.
That's the trick.
And hopefully, the treat.
