“The stock market is the only place where things go on sale yet everyone runs out of the store screaming.” Old Wall Street saying
What is it about March that brings volatility? Yesterday was the worst day of the year for stocks and worries over tariffs and a growing trade war dominate the headlines. Now the truth is this early year weakness wasn’t a surprise, as we’ve discussed many times. I was on CNBC in mid-February and even said to expect a potential banana peel drop.
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As we’ve discussed before, early year weakness in a post-election year isn’t abnormal. Early year weakness after a 20% year isn’t abnormal. And early year weakness the past 20 years hasn’t been abnormal either. No, no one should ever invest purely on the calendar, but March has had some nice lows over the years and as we show below, the past two decades it has been perfectly normal to see late February to early March weakness, but then a nice bounce.
We’ve Been Here Before
It is important for investors to remember what happened two years ago this month, as the 16th largest bank in the United States went under virtually overnight and many expected the Regional Bank Crisis to spark a new bear market, but it didn’t. The S&P 500 actually finished that month higher. Then five years ago we shut down our economy during a once-a-century pandemic. Stocks eventually fell 34% in five weeks, but then bottomed on March 23, 2020 and finished with a solid 16% gain in 2020. Then who could ever forget the Great Financial Crisis, which bottomed on March 9, 2009 after a down 56% generational bear market? The point is you might feel scared, frustrated, and confused now, but there have been many other times this has happened and many of them have taken place in this very month, but all were major lows as well. We got past those times and we will get past this one.
Putting Things in Perspective
Yesterday was a bad day, a very bad day, as the S&P 500 fell 2.7% for the worst day of the year so far. Last year saw a 3.0% down day and still had a great year, so this got me thinking how normal it is for a good year to have a bad day. Turns out, it is quite normal. I found 22 years the S&P 500 gained 20% for the full year and the worst day of the year was down 3.5% on average those years. Incredibly, 1997 had a worst day down nearly 7%, yet gained more than 30% for the year.
The average year since 1980 has averaged a 14% peak-to-trough correction on average. 2025 is up to 8.5% off the recent highs and as I’m typing this, and things could be worse by the time you read this, but it is again important to remember we haven’t had a 10% correction since late in 2023 and the odds we would go all of 2025 without one were likely slim. As you can see, double-digits corrections happen a good number of years, but still finishing higher for the year is common as well.
Volatility Is the Toll We Pay to Invest
If you’ve read these missives before then you’ve probably heard us say that volatility is the toll we pay to invest. So 2025 won’t be the first year ever to go up each day and never have a scary headline, because that’s just not the way that markets work. This is officially the first 5% mild correction of 2025, something that even the best years tend to see, and no reason in itself to become pessimistic. In fact, we had two 5% mild corrections last year plus a 10% correction, and one mild correction in 2023, but both years gained more than 20% when all was said and done. And trust us, during each of those times the past two years fear was rampant on the weakness, just as we are seeing currently.
Could this weakness turn into a 10% correction? Given stocks are one bad day away, that is quite possible, but we do not expect things to get much worse and the odds of a full-blown bear market remain quite slim. As uncomfortable as this recent volatility feels, know that it is the toll we must pay to invest.
Thanks for reading and here’s to a little less madness this March!
For more content by Ryan Detrick, Chief Market Strategist click here.
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