In the timespan of a year, it’s not unusual to have something we call winter, spring, summer, and fall. Why? This is what happens when we live on a planet that spins on its tilted axis and makes its way around the sun. It’s how life works.
This is ordinary.
It doesn’t surprise us when the sun is out during the summer and so we plan for BBQ’s, swimming, and vacations. Nor are we in shock when the temperature plummets around this wintry time of year and our gas and electric bill to heat our home shoots through the roof to keep us warm.
I’ve said it before, but it bears repeating in times like this, stock market volatility is normal. It’s the subscription price we pay for investing. Seeing red when the DOW, S&P 500, and Nasdaq charts flash on your TVs and screens is to be expected.
Last year is what was abnormal. There was hardly any volatility in a year where the stock market performed beautifully. The S&P 500 only had seven trading sessions where index went up or down more than 2%.1
Now that’s an oddity.
In the last four or so decades, the average drop during the year was 14%.2 As of the time of this writing, we haven’t even hit average yet.
The S&P 500 is only (am I allowed to say that?) off about 9%.
Could we be headed to a year that is worse than average? Dare I say, extraordinary? Possibly. Remember though, even when above-average declines occur within the span of a year, they too can finish the year positive.
Say it out loud so you can hear yourself say it, “14% declines are average.”
This is ordinary.
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Sources:
1. https://www.reuters.com/markets/asia/live-markets-2021-saw-lot-less-volatility-sp-500-2022-01-05/
2. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/ (See page 7).