Staying Focused in Uncertain Times

With everything happening in the world right now, it’s understandable to feel unsettled. The combination of uncertainty—economic, political, and global—can create a real sense of anxiety, stress, and even frustration. You may be wondering what all of this means for your family, your future, and the financial foundation you’ve worked so hard to build. It’s natural to have questions and even fear. You’re not alone in feeling this way. We want to assure you that we are here for you. 

History has shown us that markets go through periods of volatility, but they also recover. For example, during the 2008-2009 financial crisis, markets dropped sharply. However, those who stuck to their long-term strategy also saw significant rebounds over the following years. The same was true after events like the 2000-2002 Dot-Com Bubble and even the sharp decline at the start of the pandemic in 2020. Through all these times, patient and disciplined investors have been rewarded.

What is the historical volatility of the US stock market?

As of March 14, 2025, the S&P 500 was down 3.85% year to date. It is down 7.89% from its peak on February 19, 2025.  Even though this volatility doesn’t feel normal given our current environment, let’s look at historical information to help put the current pullback in perspective. 

• A “pullback” is generally defined as a drop of 5-10% from a recent peak. On average we see three pullbacks per year.
• A “correction’” is generally defined as a drop of 10-20% from a recent peak. On average we see one correction per year.
• A “bear market” is generally defined as a drop of 20% or more from a recent peak. On average this happens about once every six years.

When were the last “bear markets”? 

• 2001: down 29% from the peak.
• 2002: down 33% from the peak.
• 2008: down 48% from the peak.
• 2009: down 27% from the peak.
• 2020: down 34% from the peak.
• 2022: down 24% from the peak.

In all these previous bear markets, disciplined investors that stayed the course were rewarded as they watched their portfolios recover and hit new all-time highs. In periods of heightened volatility, we will see big swings daily. In fact, the best days and worst days tend to happen very close to each other as you can see in the chart below. 

Is time in the market more important than timing the market?

Yes! Missing the ten strongest days of the market from 2005-2024 would have resulted in a significantly lower annualized total return compared to staying invested throughout the entire period.

What is a recession?

In economics, a recession is a significant decline in economic activity. This typically lasts more than a few months and is characterized by a downturn in production, employment, and income. A common rule of thumb is that two consecutive quarters of negative Gross Domestic Product (GDP) indicates a recession.

When were the last recessions?

• 2001 – Tech Bubble
• 2008 – Great Recession
• 2020 – Covid Pandemic

Do recessions and bear markets occur at the same time?

Sometimes but not all the time. Since 2000, we have experienced six bear markets and three recessions.

What has historically happened before, during and after recessions?

Each economic environment surrounding a recession is different, but we do tend to see similar patterns. No one really knows when the next recession will occur, but here is some general guidance.

Before a recession: 

• The unemployment rate bottoms out and begins to increase.
• Certain assets, such as stocks and real estate, can become overpriced. This is very specific to each company and real estate holding, but we tend to see stock and real estate prices drop as we head into a recession.

During: 

• The unemployment rate continues to increase as we see companies reduce their investments and lay off portions of their work force.
• The Federal Reserve will usually start to reduce interest rates to stimulate the economy.
• Bond prices tend to go up since they have an inverse relationship with interest rates. Bonds have historically been a good ballast in investment portfolios during recessions to help off-set losses in equities and real estate.
• The yield on money market funds and savings rates will generally reduce in lockstep with lowered interest rates.
• The stock market tends to “bottom out” in the middle of a recession and start its recovery before the recession is over.

After: 

• The unemployment rate will peak and begin its decline.
• Interest rates may be lower, which creates an opportunity to refinance your current debt or take on new debt at a lower rate.
• Real estate and stocks that were potentially overpriced are now affordable again. However, real estate prices tend to lag compared to stock prices. Stocks have daily liquidity so their prices will adjust quicker.

Are we going into a recession now and should I make changes in my portfolio?

We do not know if our country is close to the next recession. American investor and philanthropist Peter Lynch once said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” This is also true for recessions.

Instead of changing your portfolio to time a potential bear market, create an investment plan that is durable enough to withstand a wide range of environments. Give yourself a margin of safety with a high cash reserve to provide options for short-term cash needs and any number of curveballs that life will inevitably throw at you.

If you’d like to talk through your portfolio, goals, or any concerns you have, we’re here for you. Whether it’s a quick call, a Zoom meeting, or an in-person review, we welcome the opportunity to connect.

Please don’t hesitate to reach out—you are our priority.