by Robert E. Quittner, Jr. CFP® & CMFC™
Investment Advisor Representative
[email protected]
At the beginning of the week, I considered a range of topics to write about today. By Tuesday it became clear that “Liberation Day” was on many people’s minds.
This year started out with great promise as the S&P 500 rose 4.5% through February 19th. Unfortunately, Mr. Trump’s threat of tariffs soon took center stage and the markets started trending downward. As Peter noted two weeks ago, the markets don’t like chaos, and while there were certainly other factors contributing to the downturn, the driver has been tariffs.
It’s hard to tune out the news media, especially with today’s electronic updates, and the media excels at promoting pessimism. Yesterday they had plenty to promote, and the S&P 500 dropped nearly 4.8% to bring its decline from its recent peak to 12.2%. Once we’re below 10%, we’re in correction territory. Put another way, the market has erased all its gains from the past 10 months.
Trump’s new tariffs, rolled out Wednesday afternoon, impacted 185 countries (and countless penguins) and have pushed the effective US tariff rate to its highest level in over a century. The markets, in response, headed downward Thursday, and will likely continue to experience instability in the short-term. While such uncertainty is unsettling, history shows that market disruptions are typically followed by strong recoveries.
Now is a good time to step back and keep two important facts in mind:
- View this correction in historical context. The table below illustrates how the stock market responded during other past growth scares and bear markets. It also shows the period of positive market performance in the 12 months that following these crises.
It’s also important to note in the chart above that we went through a previous round of Trump tariffs in the Trade War of 2018, although those tariffs were on a smaller scale.
- Stay invested to protect long-term financial goals.
The best days of market recoveries tend to clump together with the bad days. Emotional, panicked reactions like going to cash completely not only lock in losses but also lock out the big recovery days.
The chart below shows how a hypothetical $100,000 investment in stocks would have been affected by missing the market’s top-performing days over the 20 years from January 1, 2000, to December 31, 2019. An individual who remained invested for the entire period would have accumulated $324,019, while an investor who missed 10 of the top-performing days during that period would have accumulated $161,706.
The current situation is different than past market declines, as the tariffs at the root of Thursday’s severe market drop were avoidable and against the better judgement of many (maybe most) economists.
We know how upset and scared many people are, but timing the market is an extremely difficult strategy to execute successfully. Here’s why:
- Best and worst days cluster together. The biggest gains often happen within days of the sharpest declines.
- Emotional investing leads to mistakes. Fear during downturns can drive investors to sell, causing them to miss the rebound.
- Recoveries are fast and unpredictable. Markets can surge within days, and those sitting on the sidelines risk missing out.
In times of volatility, patience and discipline are key. Successful long-term investing is about staying the course—even when the news cycle makes that difficult.
We certainly understand that everybody reading this is at a different point in their financial journey and that your needs, goals, and risk appetites can be different. We are always available to discuss your financial situation and to talk you off the ledge.
Turn off the news, keep off social media, and try to enjoy the weekend!
Rob