Stock Market Declines Are Normal

In any given year, the average peak to trough decline for the S&P 500 is 14.2%. Despite these regular pullbacks, the market has been positive 33 of the last 44 years, with an average annualized return (from June 1980 – June of 2024) of 9.165% or 11.873% if you were reinvesting dividends.    

After the stock declines on Monday, the S&P 500 was down around 4.5% over the previous five days but still up over 9% on the year. 

Stock market declines are a normal part of investing.

(Source: JP Morgan’s Guide to the Markets)

I talk about this concept incessantly and send out some version of the above chart one or two times per year, but just as our bodies can’t store vitamin C, our brains can’t store words of reassurance.  So, if this seems repetitive to what I’ve said in the past, it is. 

But look at these market swings?

The stock market going up or down 2% on any given day is also normal.  We just haven’t seen much of it in the last 18 months, and humans tend to have short memories when it comes to the financial markets. So here is another chart to help make the point.  

Source: Blackrock

But why does this week feel different?

Howard Marks has written that risk tolerance is unlimited at the top, and non-existent at the bottom.  The investors that were feeling opportunistic when the prices were going higher feel nothing but fear the moment the prices move the other way.  The same data points that were positive two weeks ago have transmogrified into omens of recession. This is how it has always been and this is how it always will be.

Humans aren’t designed to be good investors.  Our only hope is to tune out the noise, execute our plans, and remember that this too shall pass.