This is Normal
Wow, that escalated quickly.
Markets around the globe sold off in a hurry this week.
The S&P 500 is down almost 6% from the recent highs. The Nasdaq 100 is in an 11% drawdown (source bloomberg.com in USD).
After an extremely calm year, the past week or so has finally seen some volatility in the stock market.
Here’s the thing — it’s what happened leading up to this “correction” that was not normal.
So far this year, the stock market has been abnormally calm before the current correction.
We all know that this situation couldn’t last forever. So it didn’t.
We hate love to be “the guys” who provide these reminders during every single correction, but really, this is perfectly normal.
The stock market is supposed to fall every once in a while. It can’t just keep going up forever.
The U.S. stock market experiences a correction almost every year:
If we look at 95 years of stock market performance, we know a few things are almost a certianinty:
a 5% downturn is all but guaranteed every year
a double-digit drawdown happens around 67% of all years since 1928
the average drawdown during any from 1928 to 2023 was -16.4%. Since 1950, the average correction in a given year was -13.7%. This century it’s been -16.2%(source ritholtz
If anything, the current correction is weak based on historical data.
It could get worse. We don’t know what’s going to happen the rest of the year. One week (or several weeks) does not determine the annual outcome of the market.
The S&P 500 is still up nearly 13% on the year. It was up as much as 20% at one point but we’re still looking at a double-digit total return in 2024 (so far) (source Bloomberg.com USD).
We don’t know if that will hold for the remainder of the year but it’s perfectly normal to experience a decent-sized correction even when the market finishes the year with solid gains.
From 1928 through 2023, the S&P 500 was up 70 out of the 96 years (73% of the time). In 35 of those 70 years with positive returns, there was a double-digit correction along the way. So half of all years with a gain experienced double-digit losses to get there (source JP Morgan Guide to the Markets USD).
A fact that all investors must accept - The stock market will go down even in the years it goes up. This is true even when stocks are up double digits.
As per the above chart, the S&P 500 has finished the year up double-digits in 56 out of 96 years since 1928 (almost 60% of the time).
In 24 of those 56 years with double-digit gains, there was a double-digit loss at some point in the same year. That means nearly 45% of the time when the stock market has been up 10% or more, there has been a correction of 10% or worse on the path to those gains.
Maybe this year finishes with yet another double-digit gain, maybe not.
Maybe we see another double-digit drawdown, maybe not.
When investing in the stock market you have to be prepared for both possibilities. Big gains and big losses are par for the course when it comes to investing.
Volatility is the price of admission when it comes to investing in equities.
That’s true when markets go up or down.
“…and then in the summer of ‘24 I liquidated my retirement portfolio because of something with the Japanese yen being carried…I think…”
If you want to discuss how this may impact your portoflio in more detail or want to schedule a time for a review, we are always available. Please email or call anytime. Have a wonderful day.
Tony De Thomasis, Bsc, CFPPresident[email protected]905 731 9800 ext 226
Jason De Thomasis, BMOS, CFPCertified Financial Planner[email protected]905 731 9800 ext 229
Your Wealth Management Team
Renata De ThomasisExecutive Assistant[email protected]905 731 9800 ext 232
Chaojun (Seven) Zhu
Associate[email protected]905 731 9800 ext 237
This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.
The opinions expressed in the communication are solely those of the author(s) and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed.
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