The stock market started 2024 strong, hitting record highs in the first quarter. But April brought a pullback, and let’s be honest, that can be stressful. Here’s the thing: downturns are a normal part of the market, even in years that end up positive.
This chart from J.P. Morgan tells the story. It shows the annual return for the S&P 500 (in grey) alongside the biggest sell-off of the year (in red). Remarkably, in the past 44 years, the market experienced an average drawdown of 14% annually, yet still managed to finish positive in 33 of those years! That means in most cases, the market bounced back and surpassed any losses.
So far in 2024, the decline has been around 5% percent, which is less than the historical average. A bigger drop wouldn’t be surprising.
So, what’s causing the jitters? A few things: geopolitical tensions, rising energy prices, and the possibility of higher interest rates.
Plus, it’s a presidential election year, which can add volatility. History suggests that presidential election years tend to be pretty good for stocks, especially in the second half of the year.
The key takeaway? Volatility is the price of admission for the potential of higher returns in the stock market.
Don’t let short-term swings throw you off course. Stay focused on your long-term investment goals and remember, this too shall pass.
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