Jeffrey Hoffmeyer, CFA
Lead Analyst, Asset Allocation
Get to Know Jeffrey
In the last few months investors were quickly reminded of the volatile nature of equities as these markets suffered steep declines. While there are several possible explanations — ranging from high valuations to geopolitical concerns — many are wondering if we were simply due for a correction or if this a sign of more to come. This week’s chart looks at the historical inter-year drawdowns for the S&P 500 to see how the recent pullback compares.
Since 1983, the S&P 500 index has only had five calendar years with a negative return. Despite this, 28 out of the last 35 years had an intra-year drawdown of more than 7% with the median max drawdown around 10%. Year to date, 2018’s largest drawdown was 10.2%. While this is significant, especially in comparison to the remarkably calm 2017, this is not out of the ordinary. Additionally, even with this drop in the index, the total return for the year is nearly flat thanks to dividend yields.
It is difficult to predict what happens next given the current volatility. Many geopolitical risks remain and though valuations have come down, they are still elevated in comparison to historic levels. However, this drawdown is similar in magnitude to many previous years and the historic average, suggesting that the worst may be over. Even with drawdowns of this size most years have delivered positive equity returns, meaning this could an opportunity to enter the market or invest additional funds.
The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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