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Is This Time Different?

In September we were hitting new all-time highs in the stock market, and now the talking heads are sounding like the economy is about to enter a recession, and everyone is looking for a reason to give up and sell. Have we forgotten that markets are volatile? Well, they are. Here is a chart that should serve as proof of just how volatile they have been:


The red dot represents the biggest INTRA YEAR DROP for each calendar year going back to 1980. Through September, the pullback this year has been 10%. This is below the long-term average of about a 14% annual decline. Please also take note that of the 38 years represented in this table, there have only been 8 years in which the calendar year return was negative. This is roughly 1 out of 5 years. That means that 4 out of 5 years are positive! Yet in each one of the last 38 years, the S&P 500 index has been in the red at some point in time. EVERY YEAR.

The point is that buying into market weakness has paid off more often than not. Let's take the first year in this table as an example - 1980. Had you simply owned the S&P index on January 1st of that year and held it until December 31st, you would've enjoyed a very handsome 26% return. However, if you would have bought at the time same index at whatever point in the year the value had declined by 17%, you would've enjoyed a far more attractive return. This would've happened in less than a full year's time!

This next chart highlights what has happened to the S&P 500 the last two times we had an inversion in the yield curve, another hot topic right now. The green squares show the move in the index from the time the inversion occurred to the next meaningful drop in value.


Is this time different? Time will tell, but we maintain that the economy is still not showing signs of an imminent recession. Your WealthEngage team is always here to explain what is happening and what you can do to improve your situation. Don't be shy about asking to schedule a call or meeting to review your portfolio.

Happy Holidays!

Any opinions are those of WealthEngage and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.