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Normal Market Behavior? Thumbnail

Normal Market Behavior?

Investing Insights

The stock market took a bit of a breather to close out August.  And you may have already heard that September, on average, has been the worst month for the market since 1950.  However, during years when the market is up 10%+ for the year, and coming off of a down August, the month of September tends to surprise to upside.  Let's see if this year follows suit... 

We're still in the midst of a nice rebound from last year, and rebounds tend to look more like a heart monitor than the letter "V".  As a stock investor, what level of movement & volatility is considered normal?  Of course, we are all hoping for gains without periods of loss.  We know this isn't reality, so what should we expect?   

Let's take a look at some data from 1980-2022:     

How often does a 5% market drop occur?

The market loses 5% roughly 4-5 times per year.  We experienced an 8% dip in March, and nearly a 5% dip last month.  

What about 10% Market Corrections?

On average, the market drops by 10% about every 1.2 years.  So basically every year...

How about 20%+ Bear Markets?

We've seen 8 bear markets since 1980, and we're still recovering from our most recent bear market from 2022.  That's a new bear market about once every 5 years!  

Conclusion:

In my opinion, a stock investor's success has very little to do with which stocks he or she picks.  Instead, success is derived from one's ability to stick with a strategy.  As the data above suggest, we know 5%, 10%, & 20% drops are part of the program.  Understanding this reality and mentally preparing for the next drop should improve the process!       

Beyond Investment Advice...

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Thanks for reading!  Tune out the noise, trust the process, and always be compounding. 


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Sources for this Blog: https://www.covenantwealthadvisors.com/post/understanding-stock-market-corrections-and-crashes#:~:text=Just%20about%20every%20year%20since,year%20over%20the%20same%20period.