Complacency is defined as a quiet pleasure or security, often while unaware of some potential danger. While complacency is not an attribute that often affects investors, after a prolonged period of good returns with little volatility, it can creep in – catching investors off guard.
The Serenity of 2024
In the first 145 trading days of 2024, the market went up by more than 1% on only of the 15 days and it went down by more than 1% in 9 days. That means over 80% of the time the market has been relatively flat on a daily basis.1
To further highlight the serene investment environment as of late, the stock market has experienced only one day where it lost more than 2% in the last 17 months. This low volatility has occurred despite the upcoming divisive presidential election, elevated interest rates, and an increasing national debt.
Change Happens
But this calmness may not last. We should always be prepared. The market can go from serene to turbulent in a matter of days…usually triggered by some unexpected event.
Historically the market, even in good years, experiences significant sell offs. Since 1980, the average yearly selloff is 14%. This is only an average, some years the sell offs were small, others were quite large. The largest intra-year sell off while still producing a positive annual return was a drop of 34%. So far this year we have experienced a selloff of 5%.2
Preparation is Key
We should always be prepared for a potential selloff. They can happen suddenly, at any time, for any reason. And when that selloff comes, the media will use it to stoke fear and anxiety among investors. And that’s OK. Because selloffs are normal and natural functions of healthy capital markets. Those that are prepared will be in a great position to respond thoughtfully and ensure decisions are in line with their stated goals and objectives.
– Jonathan
1. The market is defined as the S&P 500. All figures through July 30, 2024. S&P 500 Index was down 2% in one day on 7/24/2024 and the next time was 02/21/2023. 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. All indices are unmanaged and may not be invested into directly.
2. FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2023, over which time period the average annual return was 10.3%. Guide to the Markets – U.S. Data are as of June 30, 2024.