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Even though this year has felt incredibly volatile, it might just end up aligning with historical norms. In other words, volatility is common.
After experiencing surges in 2020 (COVID), 2022 (inflation), and a few months this year (trade war/tariffs), investors hope for smoother days ahead. While we saw a massive spike in March and April, it was pretty muted to start the year and has been almost nonexistent the past two months, as the S&P 500 has experienced only two trading days with losses greater than 1% (May 20 and June 12). What’s somewhat surprising is that this has occurred despite limited progress on trade tensions, the ongoing Russia-Ukraine conflict, and rising tensions between Israel and Iran.
We still have six months left to the year, and a lot can happen. If volatility remains muted, the volatility experienced in 2025 will be somewhat similar to its average dating back to 1980. Either way, one thing’s for sure, it has already provided investors ample opportunities to take advantage.
The chance to buy the dip, rebalance, or conduct tax loss harvesting was there for the taking, and unfortunately, many investors missed these opportunities. I say “unfortunately” because volatility tends to be viewed in one lens—negatively—when in fact it should be embraced at times. I think part of the issue is that when volatility hits, people focus on the present and forget about the past. This focus can mess with one’s psyche because investors often feel helpless and forget about the countless times they’ve been through a similar experience.
Look, I get it. Sharp market declines can drive a small part of our brain to assume each one will be “the one” that spirals out of control. We heard and witnessed similar sentiments during 2008, 2011, 2018, 2020, 2022, and earlier this year. Yet guess what? Markets recovered every time. In fairness, it took the S&P 500 nearly four years to recover from the declines during the 2008 financial crisis. Minus that time, it has rebounded rather quickly and handsomely rewarded those who stayed the course.
Now, this begs the question of how markets continue to rally in the face of all this uncertainty. The truth is they are regularly within 5% of all-time highs. Since 1952, the S&P 500 has spent 44% of trading days within 5% of all-time highs! This means corrections aren’t all that common and should be viewed as an opportunity when they take place. As seen on the chart below, the S&P 500 has averaged nearly five 5% pullbacks annually since 1980. While we’ve already experienced five this year, we were a bit fortunate to have a total of five during the prior two years.
The likely takeaway from this chart is that in the years when volatility spikes, markets have ended the year with a negative return. Thankfully, this is not the case, as the S&P actually finished with a positive return in 50% of the years in which there were at least six 5% corrections. So even when volatility was well above its average, your odds of a positive annual return have literally been a coin flip!
Positive Annual Returns: 1980, 1982, 1987, 1988, 1999, 2009, 2011, and 2020
Negative Annual Returns: 1981, 1990, 2000, 2001, 2002, 2008, 2018, and 2022
Diving a little deeper, the longer-term numbers look even more promising. In nearly every instance where markets finished the year negatively, they followed up with several positive years in a row:
The S&P 500 rallied ~26% in 2023 after declining ~18% in 2022.
It also yielded a positive return in 2024 and so far in 2025.
The S&P 500 rallied ~31% in 2019 after declining ~4% in 2018.
It also went on to rally for an additional two consecutive years.
The S&P 500 rallied ~26% in 2009 after declining ~37% in 2008.
It also went on to rally for an additional eight consecutive years.
The S&P 500 rallied ~30% in 1991 after declining ~3% in 1990.
It also went on to rally for an additional nine consecutive years.
The S&P 500 rallied ~21% in 1982 after declining ~5% in 1981.
The S&P 500 went on to rally for an additional seven consecutive years.
The outlier here is the dot-com bubble. From 2000 to 2002, the S&P declined for three consecutive years (-9%, -12%, and -22%). In fairness, it rallied for nine straight years leading up, so there were ample opportunities to cash in on profits, reduce risk, and do what was necessary to shield one’s portfolio from some of the volatility.
Besides this period, the S&P has not experienced consecutive down years since 1980. This provides a great opportunity for those with a multi-year time frame. The chart below helps illustrate that the upside far outweighs the downside and that the S&P 500 has averaged an annual return of 13.3% during this period!
Source: Fidelity.
As we know, investing comes with no guarantees. That said, history provides us with useful data to use to our advantage. While each market decline is unique, markets are generally significantly higher several years later. Managing your risk and having an adequate cash reserve will help you get to the other side and take advantage when appropriate.
Stay the course …
Feel free to discuss your situation with our financial planning firm.
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