In January's newsletter I discussed how we have seen some volatility in the markets to start off the year, and that has continued through to today. The performance of the S&P500 through the first 49 trading days of the year has been the 4th worst drawdown in the history of the stock market. (See table below)
While history never repeats itself, it often rhymes.
You will notice in the table above that for most time periods when the market had a rough start to the year, the performance through the rest of the year was usually very strong. This is especially true for those time periods when the year started off with a double digit drawdown, and positive mid double digit returns followed. There were exceptions to this performance during the years of 2008 and 2001, but in all the other time periods the market was positive for the remainder of the year.
Some have questioned the recent geopolitical events surrounding Russia and Ukraine, and wondered what that means for the stock market. For that, we will look back on past events as well.
Source: Truist IAG, iA Economy
In the chart above, I've only included certain geopolitical/military events from the past. (If you want the full chart, please message me.) However, what you will notice is that in the short term (1-3 months later) the market has had mixed results based on a historical precedence. Looking over the longer term (12 months later) you will see that historically the market has had positive results.
I wanted to include some of these charts to keep the situation in perspective. During market turbulence when your confidence is tested, it can always feel as though this time is different. There are always reasons to doubt the future when the market is down. Ultimately, great businesses will continue to provide products and services, and take away market share from other struggling companies. These great businesses are what you are investing in. Great investors will use this opportunity to scoop up businesses on the cheap. If you have cash sitting around, now is a great time to add to your portfolio.
As a final thought, I want to share another article that I found interesting. It follows the story of Bob, who is the world's worst market timer. He is a disciplined saver, but he only ever feels comfortable investing at market peaks. Spoiler alert... he still ends up a millionaire. The key to Bob's success was staying invested.
Stay invested and this turbulence will pass.
To read the full story of Bob, Click Here.
Financial Advisor | CFP, BASc