Stock markets sold off this week after the August CPI inflation report came in higher than expected. Fixed income markets are pricing in a higher likelihood that the Federal Reserve will increase the Federal Funds rate to 4% or higher over the coming months. The stock market sell-off reflects a stronger belief in Chairman Powell’s Jackson Hole speech that the Fed will have to keep rates higher for longer to fight inflation, even at the expense of an economic recession.
Markets are more volatile during uncertain times, but volatility is a normal course of long-term stock market investing. We have seen that markets move very quickly in anticipation of future events (positive or negative). During the 42 calendar years from 1980 through 2021, annual returns were positive 32 of 42 years, with average intra-year drops of -14%. Importantly, the average annual return was +9.4%.
S&P 500 Intra-Year Declines vs. Calendar Year Returns
Source: 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 2021, over which time period the average annual return was 9.4%.
Guide to the Markets – U.S. Data as of September 13, 2022.
Our team at Farther continues to believe in the wise adage: investing isn’t about timing the market, it’s about time in the market. Missing even a few of the best days of a market recovery can severely impact your returns over time. While it can feel painful, pullbacks like this one offer the opportunity to rebalance portfolios or dollar-cost average into portfolios that can improve returns over time.
As always, your advisor is available to discuss your personal situation.
