As of the market close on Monday, March 10th, 2025, the S&P 500 is down 8.62% from its all-time closing high just 13 trading days ago. Zooming out a bit, the market is only down 4.54% from where we ended a very strong year for the equity markets in 2024.
To provide some recent context, in 2024 the S&P 500 suffered an 8.49% drawdown that began July 17th and ended 20 calendar days later, before fully recovering within 45 calendar days and finishing the year at even higher levels. In 2023, the S&P 500 had a deeper drawdown of 10.28%, starting August 1st and finally troughing 88 calendar days on October 27th, before recovering 34 calendar days later and finishing the year higher once again.
We look at these periods of decline to better understand how significant the current pullback is in an historical context and to remind investors that pullbacks of 5-10% are actually quite common and more the rule than the exception.
We understand the daily volatility we’ve seen recently, coupled with increased news flow and a highly divisive political environment, can be stomach churning to say the least. While the US Equity Markets appear to be tilting to the bearish side in the short-term, the long-term trend remains bullish at this time.
The tariff policies being discussed, implemented, and in some cases paused or amended, are creating elevated uncertainty around earnings forecasts and the markets are reacting as they normally do when the outlook becomes more murky. Earnings growth forecasts remain quite strong for 2025 and 2026, but sustained tariffs could be a headwind to those forecasts and it seems the markets are looking for more clarity on this issue.
Additionally, recession fears have been rekindled by comments from Treasury Secretary Bessent and President Trump, acknowledging there could be some pain created by their policy shifts and a recession cannot be ruled out. These comments and resulting concerns are what largely drove stocks lower on March 10th, as weakening investor sentiment removes some of the froth in the markets when trading at elevated valuations as the market has been for most of the past two years.
It’s natural to feel the need to take swift actions, but often such actions result in undesired and unexpected results. Even to this day, we talk to investors looking for strategies to get back into the market after crystallizing losses during the Covid-induced market sell-off in the spring of 2020. We’ve heard a similar story repeated time and again, fear led them to the sidelines and fear of buying back in too high following a sharp recovery led them to remain on the sidelines, meanwhile in this case the S&P 500 has risen from a closing level of 2,237.40 on March 23, 2020 to a closing level of 5,614.56 on March 10th, 2025.
We continue to believe a better approach than being overly reactive to volatility, is to proactively address risk in the way we build portfolios. We often discuss how much risk you are willing to accept without losing sleep or making an emotional decision and actively look to maintain that risk level to participate in good markets and weather the storm in bad markets. In many cases the portfolios we construct have a level of natural adaptability to the market environments that may not be apparent in the early stages of a market pullback, but become increasingly evident when a run-of-the-mill market pullback turns into something more severe.
If you have concerns, please let us know and we are happy to discuss the markets and your portfolio in more specific terms.
Written by Tim Sittler, CFP®, CAIA