The S&P/TSX Composite rose 2.28% on Wednesday, November 4, after the U.S. midterm election result, then fell 736.13 points, or about 2.03%, to 35,605.27 on Thursday. The two sessions left the index only about 0.21% higher than before Wednesday’s rally. Both daily moves were dramatic. Taken together, they were close to a round trip.
On Wednesday, investors bought an argument about political clarity. By Thursday, the focus was the possibility that new U.S. lawmakers and governors could slow the buildout of artificial intelligence infrastructure. The Nasdaq declined 5.52%, with semiconductors among the hardest hit. Neither explanation needs to be false for the sequence to expose a behavioural problem: the latest vivid event can look like the only event that matters.
When the Most Recent Close Becomes the Whole Story
Recency bias is the tendency to place too much weight on what happened most recently. The availability heuristic, studied by Amos Tversky and Daniel Kahneman, adds a related problem: information that is vivid and easy to recall can feel more representative than it is. In investing, these mechanisms can turn Wednesday’s relief into a reason to increase risk and Thursday’s loss into a reason to reduce it.
That is an interpretation of a possible client response, not evidence that investors as a group traded this way. The tape records transactions and prices; it does not reveal each buyer’s motive. The distinction matters. An advisor who tells a client that everyone panicked is substituting a narrative for an assessment of that particular client’s plan.
The numbers show the compression clearly. A 2.28% rise followed by a roughly 2.03% fall does not produce a 0.25% gain by simple subtraction because the second percentage applies to a higher base. Compounding the two actual daily moves gives a net gain of roughly 0.21%. The portfolio experience will differ with asset mix, fees, currency and cash flows.
Two daily returns are shown; the compounded result is about +0.21% rather than the arithmetic sum. Percentages are rounded. Neither bar represents client-level returns.
The Cost Is Often the Second Decision
Barber and Odean’s research on individual investors found that the most active households substantially lagged the market over their sample period. It is not a forecast for this week and does not establish that all trading is harmful. It does show why activity undertaken to relieve discomfort deserves scrutiny. The investor who changed allocations after the rally and reverses them after the selloff has paid trading costs and potentially crystallized tax consequences while returning to something resembling the starting allocation.
A productive conversation begins before a client states a market view. Ask what changed in the client’s cash needs, time horizon or capacity for loss. If none has changed, treat the index movement as information to monitor, not as an instruction to trade. If a target weight moved outside an established tolerance band, rebalancing can be considered against a documented policy rather than against the day’s headline.
Turn a 48-Hour News Cycle Into a Longer Decision Window
The next test arrives quickly: U.S. October employment data is scheduled for November 6, after this edition’s 7:45 a.m. Toronto cutoff, and the Bank of Canada decision is scheduled for December 9. Neither release was available at this editorial cutoff. Clients do not need to predict them to have a plan for how much uncertainty a portfolio can bear.
A useful review separates three questions: what was observed, what is inferred, and what would actually cause the investment policy to change? Wednesday and Thursday supplied observations. The explanation for each price change is more contestable. The client’s required return, liquidity and risk budget are the decision framework that should last longer than either close.