We’re less than one month into 2022, and the year has already provided an interesting ride in the stock markets. Moderate volatility is reappearing. The resulting unease feels amplified because last year was an unusually smooth, positive year for U.S. stocks broadly.
Last year, the S&P 500 stock index only had a 5% drop from a peak to a trough. This past Friday, January 21, the index was down 8.7% from its high point of 2021 thus far. We’re over half way there. Fear not.
What do I mean by that?
In investment management, history is one of the most valuable guides we have to navigating markets. History tells us that since 1980, the average intra-year decline in the S&P 500 has been 14%. Therefore, we’re over half way (down 8.7%) towards the 14% average.
This volatility we’re experiencing in stocks since November isn’t unusual, although it’s uncomfortable. We can use history to our advantage in cases like these. We can see what is typical, what has happened before, and how long-term investors have been alright! Despite average intra-year drops of 14%, annual returns in the S&P 500 were positive in 32 of the past 42 years.
We encourage you to speak with your financial advisor if this article prompts questions or if you’d like to assess your portfolio for the year ahead.