At the end of 2024, US unemployment was low, real wages were rising, corporate profits were strong and the US Federal Reserve (Fed) was lowering interest rates. Hopes for tax cuts and business-friendly deregulation captivated the world of business and finance. By all accounts, 2025 should have been an excellent year for the US economy, corporate profits and capital markets.

As of Thursday’s close, the S&P 500 was down 10% from its recent all-time high; however, as of Friday morning, the markets are bounding back nicely. It’s uncomfortable not knowing whether this recent drawdown will turn into a bear market, but like most things in life, the future is impossible to predict. It does help to know that the markets have always recovered from drawdowns, usually quickly but sometimes slowly. During these drawdowns, we must not let our emotions overrule our rational minds.

As investors, we must remember that corrections and volatility are the price we must pay for long-term superior returns. The market has historically gone up 60-70% of the time, which means it has gone down only 30-40% of the time. Maintaining our composure during that 30-40% separates the winners from the losers.

Since 1927, corrections of 5% have happened 57% of the time, while 10% drawdowns have occurred 37% of the time. We had one just last summer following a growth scare and the unwinding of the Yen carry trade. Bear markets (-20%) have happened 20% of the time, yet the stock market has compounded at +11% per year over the long-term. Investing is about staying level-headed when volatility hits, these are good stats to keep in mind while we worry about what Trump will do next.

Nearly everyone is struggling to comprehend the wild swings in Washington’s policies and their implications for everyday decisions. We can only construct and balance our portfolios to weather the storms to optimize risk-adjusted returns.

The recent volatility is due to all the uncertainty out there. Markets don’t like uncertainty. Once the tariffs are agreed upon, we will have a clearer vision of what lies ahead for the global economy, good or bad. The volatility will subside, and we can all have a good night’s sleep.

As always, please don’t hesitate to call if you would like to review your portfolio or discuss recent events.

Have a great weekend,

Tracey & Paige

Sources:

https://advisoranalyst.com/2025/03/11/jurrien-timmer-high-altitude-week-of-march-10-2025.html/?utm_term=prix&utm_medium=email&utm_source=aa&utm_campaign=enewsletter https://advisoranalyst.com/2025/03/12/quick-thoughts-risk-vs-uncertainty.html/?utm_medium=email&utm_source=aa&utm_campaign=enewsletter

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