The stock market’s recent volatility can feel unsettling, but we remain confident in our strategy.
That said, it’s natural to feel rattled—or even tempted to move to cash—when markets drop, especially with the media constantly promoting this approach during market swings.
However, history shows that some of the best market days happen right after the worst ones.
As an example, see the chart below highlighting: Staying invested yields a 10.4% gain, while missing the 60 best days results in a -3.7% loss.
Background
The stock market has been volatile the past few days, down about 8.2% from a recent high in early February.
For perspective, the market dropped 8.5% between July 16 and its low on August 5, 2024, but rebounded by August 30, surpassing its July 16 level.
In general, market recoveries tend to be quick. The average time to recovery is three months from a 5%-10% downturn and eight months from a 10%-20% correction, according to Invesco research.
Let’s take a look at two key factors causing the current fluctuations:
#1—Tariffs
President Trump recently imposed new tariffs on Canada, Mexico and China, escalating trade tensions and contributing to market uncertainty. After a 30-day pause, he implemented 25% duties on Canadian and Mexican imports, along with a second round of 10% duties on Chinese goods, bringing total tariffs on China to 20%. (Then, just two days after, Trump issued some exemptions for Mexico and Canada goods. The situation is highly fluid.)
The media often frames this as a “trade war” or even an “act of war,” but we urge you not to get caught up in the rhetoric.
FACTS: Clarifying Misconceptions & Highlighting Opportunity
Tariffs existed well before income taxes in the U.S.
In fact, they were the primary source of federal revenue for much of U.S. history before the income tax was introduced in 1913.
While tariffs continue to generate revenue today, they’re a very small portion of the federal budget compared to income taxes. (To learn just how small, read our post: The Economy, Tariffs & Consumer Sentiment.)
This historical perspective can help put recent tariff activity in context, i.e., rather than viewing them as unprecedented or catastrophic, it’s helpful to remember that tariffs have long been an economic policy tool.
Tariff activity may cause short-term market fluctuations. However, it’s not inherently a signal of economic collapse—despite media hype.
Finally, past volatility—whatever the cause (e.g., inflation, pandemic, tariffs, war, etc.)—has been an opportunity to buy great companies at a discount.
#2—Broad Economic Uncertainty
There’s a general sense of economic uncertainty driven by multiple factors, including geopolitical tensions, inflation concerns, interest rate policies and the new administration’s actions.
In just the last few weeks, Trump has signed nearly 100 executive orders targeting key areas, e.g., immigration, energy, federal workforce policies, trade, etc.
This activity and uncertainty fuels market fluctuations as investors react to shifting economic conditions. Markets tend to be sensitive to uncertainty, and volatility often follows when investors struggle to predict how these factors will play out.
Our Recommendations
Keeping a long-term perspective can help ease concerns about volatility and uncertainty.
In fact, staying invested through the ups and downs is key to long-term success.
Keep in mind:
-Each day, we rebalance 20 to 30 client portfolios to help maintain diversification and manage volatility. We also ensure your portfolio has the right mix of cash and bonds to navigate market fluctuations. Every decision is tailored to your unique risk tolerance and retirement timeline.
-Market swings often present opportunities, and have historically been an opportunity to buy good companies on sale.
Maintain Your Long-Term Financial Plan (Chart)
As we mentioned earlier, it’s natural to feel the urge to move to cash when markets drop. But doing so could mean missing out on some of the best market rebounds.
Consider these market facts from the below chart covering 1/3/05-12/31/24:
- Seven of the 10 best days occurred within two weeks of the 10 worst days.
- Six of the seven best days happened right after the worst days.
- The second-worst day of 2020 (March 12) was immediately followed by the second-best day of the year.
Market downturns are often followed by strong recoveries. Staying invested helps ensure you don’t miss those critical days.
Of course, no one knows the future—but history offers a clear lesson.
Reach out with any questions.
–David Bunker, Financial Advisor & Licensed Fiduciary
Before You Go
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.