Recent market volatility has undoubtedly been unsettling, especially given that we have had an amazing run of growth for the past 18 months. However, if we examine the recent volatility through a historical lens, we can gain more context and perspective on these fluctuations.
The S&P 500 recently underwent its second 5% pullback of the year. Despite the initial concerns, the index’s maximum year-to-date drawdown remains at just 8.5%. Historically, the S&P 500 experiences three drawdowns of 5% to 10% annually, with corrections of 10% to 20% occurring on average once a year. Therefore, 2024 is still shaping up to be relatively mild compared to historical standards. One telling chart demonstrates that since the 1980s, the S&P 500 has experienced an average maximum intra-year correction of 14%, despite an average annual gain of 13%. While the recent pullback was swift, it is well within the range of historical norms. The index is currently less than 7% off its record high from July 16, suggesting that the market remains resilient.
Even during election years, the volatility profile remains consistent. Since 1950, the average maximum drawdown for the S&P 500 during election years has been 12.8%. Given current economic, political, and geopolitical uncertainties, we may yet see a drawdown approaching this average. However, history indicates that such volatility is a normal part of the journey toward long-term gains.
Looking ahead, the team at LPL Research suggests that the S&P 500 tends to rebound positively one year after election-year lows, with an average gain of 21%. While interim lows may still be set in September or October, historical trends provide a basis for optimism about a potential rebound later this year. The team at LPL Research summarizes the one thing investors can do in their latest blog: "Elevated volatility and stock market drawdowns can be unnerving, but the market tends to reward individuals who stay invested, are patient, and do not panic."
If you would like to read LPL Research's take on the first half of the year, and what they think for the 2nd half, view their MidYear Outlook report here.
Source: LPL Research
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The content in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.