Do Downturns Lead to Down Years?

Do Downturns Lead to Down Years? The answer to this question is, “almost never.” It hasn’t been a particularly fun week for most parts of the stock market, but it’s hardly a reason for concern. And most major market indices are way up (in most cases up double digits).

But, when we do have the inevitable pullback it’s always important to reflect back on stock market history.

INTRA-YEAR DECLINES VS. CALENDAR YEAR RETURNS

And we don’t have to look very far to reflect back on one of the worst declines in market history – 2020.

For many, 2020 qualifies as one of the most tumultuous years in recent memory, if not their lifetimes. In the United States, unrest over social equality shared headlines with a hardball political season, ecological threats, and a deadly pandemic. The financial markets reacted negatively early in the year, but largely shrugged off the bad news and continuing uncertainty as the year progressed.

2020 MARKET DOWNTURN

Despite lingering pocketbook pain felt by many, the forward-looking stock market factored in the optimism of an eventual coronavirus vaccine and improved economic conditions. Investors who bailed from the stock market to stem paper losses earlier in the year might have regretted their moves after the stock market recovered, and then some.

As always, stay disciplined. And have a great weekend!!

Source: Dimensional Fund Advisors, Vanguard