Is the Worst Over, or Still Yet to Come?

April 12, 2018 | Jeffrey Hoffmeyer, CFA, Lead Analyst, Asset Allocation

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.

Print PDF

 

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.

Jeffrey Hoffmeyer, CFA
Lead Analyst, Asset Allocation

Get to Know Jeffrey

Related Content

U.S. Credit Market Health Check

01.09.2019

U.S. Credit Market Health Check

This week’s chart looks at two key indicators of the health of the U.S. credit market. The first, on the…

01.04.2019

Nowhere to Hide in 2018

As we enter 2019, we look back on what was a pretty poor year for investors. There was just nowhere…

12.28.2018

2019 Market Preview Briefing

Live Webinar – Thursday, January 17, 2018 – 1:00-2:00 PM CT

12.21.2018

Keeping the Current Market Correction in Perspective

Over the last few months, equity markets have experienced sizable drops, making many investors wary about the future. Despite this,…

12.21.2018

Fourth Rate Hike of 2018; More to Come?

On Wednesday, December 19, the Federal Reserve executed its fourth rate hike of 2018. This 25-basis point hike, the ninth…

Equities Continue Their Wild Ride

12.20.2018

Equities Continue Their Wild Ride

It has been a wild ride since the equity market peaked on September 20th. Almost three months later, the S&P…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >