Monday was a challenging day for the markets, as we saw sharp declines of 2% in U.S. large-cap stocks.1 The rout was fueled by declines in technology stocks, with mainstay names like Apple, Nvidia and Advanced Micro Devices declining by 5% or more. This year, it seems like we have experienced heightened market volatility — October was a painful example, with several days of sharp market declines that wiped out the gains we reaped earlier in the year.
Some of this volatility certainly may be attributed to the recent midterm election — data shows that market volatility can go up during election years. But you may still be wondering if this level of volatility is “normal.”
What Is “Normal” Market Volatility?
In fact, on average, markets historically have pulled back by 5% three times in any given year. Going back to 1980, the S&P 500 has had an average intra-year decline of 13.8% from peak-trough — but the market finished with a positive return in 29 out of those 38 years. There can be some years when the market is abnormally calm, like we experienced in 2017. In that year, the peak-to-trough decline was just 3% — the smallest intra-year pullback since 1995.
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Source: Morningstar®. US Large Cap stocks are represented by the S&P 500 Index.
1 Kimball, Spencer, “Trump says tariffs on $200 billion of Chinese goods will increase to 25%, blames slow progress in trade talks,” CNBC, May 5, 2019, https://www.cnbc.com/2019/05/05/trump-says-tariffs-on-200-billion-of-chinese-goods-will-increase-to-25percent-on-friday.html,accessed May 13, 2019.
2 Pramuk, Jacob, “China is raising tariffs on $60 billion of US goods starting June 1,” CNBC, May 13, 2019, https://www.cnbc.com/2019/05/13/china-is-raising-tariffs-on-60-billion-of-us-goods-starting-june-1.html, accessed May 13, 2019.
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