Volatility is Normal

The situation in Ukraine is certainly emotional and by no means normal, however it is the unfortunate reality that markets are attempting to deal with. As with Desert Storm, the Cuban Missile Crises, and prior wars…. It will be accounted for. Year to date the S&P 500 is down right around 11%. Although it feels bad, and no one likes to lose money… This is perfectly normal!

To show just how normal it is, I borrowed a chart from blogger Charlie Billieo, where he maps out the max intra-year drawdown (largest drop) for the S&P 500 back to 1928. What the numbers/history tells us is that on average, the S&P 500 experiences a 13.8% drawdown every year.

Why does it feel so much worse?

Even though the S&P is only down 10-11% YTD, it would be wrong to ignore the fact that there are many pieces of the stock market that have not fared as well. Below is a chart from JP Morgan, which shows major index’s drawdown vs. the average stock within the index’s drawdown.

As you can see, many individual stocks within these major stock indexes have gotten crushed. The average stock in the tech heavy Nasdaq Comp is down nearly 50%... These are numbers consistent with the early 2000’s tech bubble.

The takeaway… if you’ve stayed conservative, balanced, and diversified, in your equity portfolio you’ve lost money, but you haven’t gotten crushed. That is the key takeaway. Not fun by any stretch, but within the reality of expectations (at least for the professional advisor).

Where do we go from here?

Enough with the negativity… I went back and found a chart that showed the worst starts to a calendar year for the S&P 500, and then looked at how the index finished out the rest of the year.

As you see below, 2022’s first 49 trading days come in at number four on the list. You’ll notice the three years that started out worse than 2022 (2020, 2009, 1935) all finished the year meaningfully higher…

This by no means is a guarantee that markets will turn around this year, and there is certainly a lot of questions around the globe. However, I do believe it’s a great reminder to stay invested, be consistent and don’t read too much into the far future. We always say you can learn more about your portfolio in bad times than good. Your investment structure was developed to go through good times and bad. Both are inevitable and both are to be expected. We strongly suggest reviewing yours on both extremes of the markets to see if the reality is what you expected (and can handle). Emotionally it isn’t easy during these times but a sanity check along the way can be very helpful in your overall understanding and comfort. We are always here to assist so don’t hesitate to reach out.