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Until the middle of July 2024, the stock market had been relatively stable. Unemployment low, earnings solid, and indicators suggest that interest rates might begin to recede. However, this period of smooth sailing was disrupted by geopolitical tensions and a significant misstep in Japanese currency trading.
In just a few weeks’ time, the S&P 500 dropped by nearly 8%, the Nasdaq entered correction territory with a pullback of over 10%, and small and mid-cap stocks fell close to 10%.
Such volatility is to be expected and is the reason why a risk premium exists for stock investments. However, as shown in the chart below, this level of volatility has not been seen for some time.
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Other than a few days in 2022, the S&P 500’s daily performance has been extremely range bound with virtually no volatility for over two years. However, this hasn’t always been the case. In fact is somewhat of an anomaly….
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-Nearly every year, we will see a 5% + drawdown -Over 60% of the years we’ve experienced a 10% + drawdown -Over 25% of the years we’ve seen greater than a 20% drawdown in the S&P 500.
Additionally, not depicted in the chart, the average intra year drawdown from 1928 to 2023 was -16.4%.
The point is… experiencing loss and volatility in equity investing is normal.
Despite all these fluctuations, the S&P 500 has historically earned an average annual return of around 10% since inception. Achieving such returns requires accepting the risk of loss as part of the investment process.
The important piece is understanding your financial goals and having the correct asset allocation given your risk tolerance.
Going forward, we are not sure if this will be a head fake, or if it is the beginning of another bear market. We do know that it will not be a straight line in either direction. From a positioning standpoint we continue to be cautiously optimistic on markets, and remain in a neutral position.
As always, please don’t hesitate to reach out if you have any questions about your plan or investment allocation. We are always available for reviews.
Frank Vance
Retirement Capital Advisors
800 Battery Ave SE The Battery, Suite 100 Atlanta, GA 30339
Office- 412-722-3795
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network
All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. All references to markets, stocks, equity, small cap, mid cap, bonds, interest rates, or any other term are notional and for educational and discussion purposes only.
This material is intended for informational/educational purposes only and is theoretical. It should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investing entails risk of loss and no guarantees are implied or suggested. Please contact your financial professional for more information specific to your situation.
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