2-minute read
We have one bad month in the market and all of a sudden:
A decade-long dead zone, eh? Stocks are eerily similar to the Browns I guess.
That would require a two-decade-long dead zone, buddy boy.
Is that what you see coming down the pipeline? Stocks going full Browns?
No.
For a guy who hates making predictions more than Kate Hudson movies[1], I am surprised by your decisiveness.
I don’t like it but stocks do, in fact, go down.
Shrewd, shrewd.
Look at this run in the market since it bottomed out in October 2022[2]:
Decent run.
This “decent” run included positive returns in 13 of the 18 months, 6 months of 5%+ returns, and only 1 month down more than 3%.[3]
We can complain if we want to.
You sure can. And the whining may continue.
Huh? You just said a minute ago that the stock market was fine.
It is fine. But consider this:
Too much going on here. What are we getting at?
The blue bars are annual returns for the S&P 500 in a given year. The gold diamonds are the intra-year drawdowns during that year, meaning the biggest drop from market top to bottom.
And the green line?
The green line is showing the average drawdown from 1980-2023. So you can see that the average annual S&P 500 pullback is -14%.
Hmm that’s worse than I thought.
We can get lulled to sleep during the good times. And despite the noise, we have seen some good times recently.
What has been our biggest drawdown so far this year?
The market has fallen more since the release of this chart, so we’ve actually seen a max peak to trough drawdown of around -5.5%.[4]
So we could drop a lot further if the average is -14%?
Based on historical precedent, yes, that scenario could very well play out.
If the market is in a -14% drawdown, there’s no way it stops there. We have the Iran-Israel conflict, the Hamas-Israel war, record budget deficits, an upcoming Presidential election…Shall I go on?
Yep, the world is a scary place. These things can come together to send the market down 10-15% from here.
And you wouldn’t bat an eye?
I’d be concerned like the rest of us. But the truth is that would be normal. Impending feelings of doom is the toll we pay for 10% returns over time. Try your best to keep that in mind over the coming months.
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[1] My sister tried to rot my brain with How to Lose a Guy in 10 Days while I was growing up.
[2] Period: October 12, 2022 – April 23, 2024
[3] Period spans October 2022 – March 2024.