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Between August 17th and 25th, the U.S. equity market — as represented by the S&P 500 Index — declined 11%. The pace and magnitude of the market drop came as a shock to many and left investors pondering how they should react to this swift downdraft. While some may be looking to underlying fundamentals or economic data for guidance, one could simply point to history as an indicator. This week’s chart looks at the maximum intra-year drawdown for the S&P 500 Index over the last 30 years.
While this recent decline is notable, it is not unusual for the market to experience a significant intra-year drawdown. Over the last 30 years, returns for the S&P 500 have only been negative five times. However, 15 of these 30 years have featured max intra-year drawdowns greater than 10%, with 10 of those years actually posting a gain for the year. In other words, the S&P 500 has shown resiliency over the long term, and the recent 12.4% drawdown for 2015 does not automatically translate to a negative year for U.S. equity investments. In fact, the last two days have seen an impressive rebound in the markets, and when markets closed on August 27th, the S&P 500 index was down only 2.1% for the year.
For more information on the recent market volatility as well as what to expect in the coming months, please read our U.S. equity market update which was released earlier this week.
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