Holding Steady
The stock market, as represented by the S&P 500, began 2025 on a positive note advancing nearly 5% through mid-February and hitting an all-time high of 6,147. The market then proceeded to enter correction territory (defined as a 10% decline from the most recent peak) through March 13th. We recognize this downturn caught many off guard and may feel troubling for some, however we believe that taking a broader perspective may be helpful. Even following the 10%+ pullback, looking back two years from March 13th shows the S&P 500 was still up at a 21% annualized rate. This is nearly twice the 11% annualized rate seen over the previous 40-years! That still is, in our opinion, a pretty good run despite the drawdown.
Stock market corrections, like the one we just experienced, occur about once every year-and-a-half. And true to form, the last one occurred in October 2023. Many investors have already forgotten about the 2023 correction since the stock market finished that year solidly positive. However, if one had sold out of the equity markets near the October 2023 lows, they likely would have missed the 16% rebound through year end, and perhaps the ensuing strong market gains in 2024. It can seem easy, and perhaps logical, to sell stocks when the market begins to decline. But it is exceptionally difficult to know when to get back in. From our experience, investors that sell into a downturn don’t return until the market has already recovered all its losses, and then some. It is akin to selling low and then buying back high.
We view equities as a key pillar of long-term wealth generation, and what matters most is time in the market…not timing the market. In fact, studies have shown that missing out on the few best days in the stock market can significantly impact long-term returns, and most times the best days are when the market is rebounding from the lows.
Another concern that may be top of mind is whether a recession is on the near-term horizon. We don’t believe so, but we can’t dismiss that as a possibility. To be sure, some softening economic data (slowing GDP growth, declining consumer and business confidence, etc.) signal a slowing economy. Trade tensions, including potential tariffs, and persistent inflation also are weighing on investor sentiment. However, on the plus side, we are still seeing positive retail sales, the ISM Purchasing Manager’s Indexes remain in expansion territory, and corporate profit growth outlook remains healthy. Nonetheless, the slowing but still healthy economic trends combined with elevated S&P 500 valuation levels and outsized returns the past couple years helped form our decision last fall to trim equity exposure where appropriate (The World Keeps Spinning, Maybe Too Fast).
We readily acknowledge our crystal ball on the economy, stock market, and geopolitics is not perfect. But we are confident that whatever the future brings, our valuation discipline and diversified investment strategies should protect clients if volatility and stock market weakness persist. We own a mix of equities, bonds, and private market assets (real estate and private credit) each tailored to achieve the long-term financial goals of our clients. In addition, we own money market funds to support short-and mid-term liquidity needs allowing our clients to ride out volatility in the equity markets.
At the Tschetter Group, our focus is steadfast on long-term results, managing risk through strategic asset allocation, and looking beyond the “noise.” Please don’t hesitate to reach out any time with questions, concerns, or if your goals change. We’re here to support you every step of the way.
With Optimism,
Peter Jacobs, CFA®, CFP®, SENIOR PORTFOLIO MANAGER
Dustin Brumbaugh, CFA®, ADVISOR | CEO/CIO
Sources: FactSet, Tschetter Group, Dimensional Funds
Important Disclosures
The content of this article is provided for general information purposes only and is presented solely as our opinion. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee its accuracy, completeness, or timeliness. This article is based on the information available to us as of the date of this article and may change at any time. Tschetter Group does not provide tax and legal advice. Please consult your legal and tax professional for specific information.
Tschetter Group (“TG”) is a registered investment adviser with the Securities and Exchange Commission. The information provided by TG (or any portion thereof) may not be copied or distributed without TG’s prior written approval. All statements are current as of the date written and does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Different types of investments involve varying degrees of risk. Risk Disclosure Statement: All investments include a risk of loss that clients should be prepared to bear.