Dude, it quickly drift.
The markets have seen massive selling this week.
The S&P 500 index has fallen nearly 6% from its recent highs. The Nasdaq 100 is down 11%.
After an extremely quiet year, last week finally saw some volatility in the stock market.
The problem is that what happened before that was not normal:
This really interesting chart came out a few weeks ago (via Sherwood). It shows how abnormally quiet the stock market was in 2024 before the current correction.
This situation couldn’t last forever, so it didn’t.
I to hate I wish I was the guy who provides these reminders with every correction, but that’s perfectly normal.
The stock market is supposed to fall from time to time. It can’t keep going up indefinitely.
The US stock market experiences a correction almost every year:
A 5% drop is virtually guaranteed most years.1
Double-digit declines have occurred in more than two-thirds of all years since 1928.
The average intra-annual decline from 1928 to 2023 was -16.4%. Since 1950, the average correction in a given year has been -13.7%. This century, it has been -16.2%.
On the contrary, the current correction is small compared to historical data.
It could get worse. I don’t know what’s going to happen the rest of the year. One week is not enough to make things happen.
The S&P 500 is still up nearly 13% for the year. It was even up 20% at one point, but we’re still looking at a double-digit total return in 2024 (so far).
I don’t know if this will continue for the rest of the year, but it’s completely normal to see a decent-sized correction even when the market ends the year with solid gains.
From 1928 to 2023, the S&P 500 rose 70 times out of 96 years (73% of the time). Of those 70 years of positive returns, 35 were marked by a double-digit correction. Thus, half of the years of gains were marked by double-digit losses.
The stock market goes down even when it goes up.
This remains true even when stocks rise a lot.
Since 1928, the S&P 500 has finished the year up double digits 56 out of 96 times (nearly 60% of the time). In 24 of those 56 years of double-digit gains, the gain was double digits. loss at some point during the same year. This means that in nearly 45% of cases, when the stock market rose 10% or more, there was a correction of 10% or worse on the way to those gains.
Maybe this year will end with another double-digit gain, maybe not.
Maybe we’ll see another double-digit decline, maybe not.
When investing in the stock market, you need to be prepared for both eventualities. Both big gains and big losses are common when it comes to investing in the stock market.
Volatility is the price you pay when it comes to investing in stocks.
This is true whether markets are going up or down.
Further reading:
What does a healthy correction look like?
1The last year the S&P 500 didn’t decline by at least 5% was 2017. It was an exceptionally boring year for the market.
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