At the start of the year, the market narrative was overwhelmingly optimistic. Expectations of deregulation and lower taxes led many to believe that economic growth and stock market performance would continue their strong trajectory. This outlook seemed reasonable given the stellar returns of the U.S. stock market over the past two years.
Fast forward a couple of months, and the sentiment has shifted significantly. The ongoing threat of tariffs and concerns over slowing economic growth have introduced uncertainty, causing investor anxiety. As a result, the stock market is on track for a negative quarter. While tariffs and potential government spending cuts are the latest sources of market unease, the volatility that comes with such uncertainty is nothing new.
Earlier in March, as the market digested updates from the Trump administration, investors experienced fluctuations reminiscent of 2022. While the causes of volatility were different, the feeling was the same. However, history provides a useful perspective in such moments, allowing investors to respond more rationally when markets become irrational.
A fascinating historical pattern involves market declines during years of strong performance. Since 1950, the S&P 500 has posted gains of more than 20% in a calendar year on 22 occasions, with an average return of 27.6%. While these impressive returns are well-documented, what’s particularly noteworthy is the market’s worst-performing day in those strong years. On average, the largest single-day decline was -3.5%, with some instances of drops exceeding 6% (such as in 1955, 1989, 1997, and 1998).
This perspective is crucial—it’s easy to get caught up in daily market fluctuations, but many of these movements are mere blips in the long run. Our job as investment professionals is not to downplay the severity but to provide context based on past performance. While the year is still young, a well-diversified portfolio has proven resilient so far and should continue to provide investors with stability amid market swings. So the next time you see the market drop 2% or more in a day, remember: this is normal and has never lasted forever.