Why A Stock Market Pullback Is Likely
History tells us so
The first five days of March has seen the S&P 500, Nasdaq, Gold and Bitcoin all set new all-time highs.
It brings back memories of 2021 where seemingly everything was hitting all-time highs. Anything you bought seemed to rise.
We’re now in a similar period where we’ve seen the stock market have four straight months of gains in November, December, January and February.
The Nasdaq-100 has now gone 304 trading days without a pullback of 2.5% or more. That’s the third longest stretch since 1990.
These are the times where we have to remind ourselves that things don’t go up forever. Yes, at certain times it seems like they do but they do eventually go down.
It actually happens every year.
Going back to 1930, the S&P 500 has 5% pullbacks an average of 3 times per year. There has not been one in over four months.
Then there is one of my favorite charts that really tells the story of investing.
It shows just how much volatility the S&P 500 has experienced over the past 44 years. The average intra-year drop is 14.2%. Despite that much of a drop at some point throughout the year, the annual returns have been positive 33 of the last 44 years. Positive years 75% of the time.
With risk comes volatility. As an investor you have to be prepared and expect on average 3 pullbacks every year. Over the last 44 years, the average intra-year drop is over 14% during the year.
These are the technical definitions when the stock market experiences selloffs.
-5% = Pullback
-10% = Correction
-20% = Bear Market
-30% = Market Crash
Every year you should be prepared for at least 3 pullbacks and a correction at some point.
It happens and it’s healthy. Don’t be surprised when it occurs. Just because we see a selloff doesn’t mean it’s a market crash. Everything can’t go up all the time.
Nothing with investing is a straight line. It’s a rollercoaster and that’s a healthy thing.
The Coffee Table ☕
Michael Batnick wrote a timely piece called The Fear of Missing Out. I always enjoy Michael’s perspective on the market and this piece really is spot on with FOMO and what is to be expected moving forward in the stock market.
who writes had a fantastic piece called The State of the Culture, 2024. He hits on what is going on now with society’s distractions where it has now created what he calls The Rise of Dopamine Culture. This quote and visual from the article really stuck out to me. “The fastest growing sector of the culture economy is distraction. Or call it scrolling or swiping or wasting time or whatever you want. But it’s not art or entertainment, just ceaseless activity.”
Thank you for reading! If you enjoyed Spilled Coffee, please subscribe.
Spilled Coffee grows through word of mouth. Please consider sharing this post with someone who might appreciate it.
Order my book, Two-Way Street below.
