Well, we flirted with it for awhile but on Wednesday, the S&P 500 finally hit correction territory, closing 10% off the high it set in early January. It’s the first correction for the broad market index since the beginning of the pandemic. And, of course, we have a wall of worry that has led us to this point. We have inflation and likely, a series of Fed rate hikes beginning next month. Now, we also have uncertainty surrounding Russia’s invasion of Ukraine. How far it will go. How long it will last.
The markets are trying to handicap all of it, but like most real-world events, they are unpredictable, impossible to forecast. So, let’s look at history to help guide us through this moment in time. The folks at LPL Research put together a couple helpful charts.
Let’s start with how the markets respond to international crises. As you can see, the S&P 500 usually shrugs off those early declines, bottoming in less than a month and fully rebounding within a couple months.
(Source: LPL Research)
How about once the market falls into correction territory like we just did on Wednesday?
Outside of the dot-com bubble and the financial crisis, the market moved higher a year later. And, typically it’s significantly higher—up more than 20% on average.
(Source: LPL Research)
These charts are not intended to tell you exactly what’s going to happen this time. Variables are rarely ever the same. So, you must be humble in your assessments and diligent in your research. But, these charts can help show you the possible light at the end of the tunnel. After all, the markets recovered from each and every one of these previous crises and corrections.
Right now, we believe it’s most important to lift your head and raise your eyes up to see down the road. Look beyond today, tomorrow, next week and next month. Use this selloff as an opportunity to reflect; to better understand your true tolerance for volatility and risk. If you’ve felt lots of panic or sleepless nights, talk with your financial professional about adjusting strategy when the clouds clear.
Investing is a journey, the drive of a lifetime. You want to drive your investments at a speed that you find most comfortable. If you need help better understanding your desired speed, reach out. Our team can show you.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.