Meritage Periodical March 2025

Prompting critical thinking and conversations around issues in our industry.
Not intended as personal financial advice.

What is Normal Market Volatility?

With the recent increase in market volatility, we wanted to take the time to revisit this topic. To help understand what is normal, we thought we could share two points for perspective:

• To many people, markets feel far more volatile than they remember. We believe this feeling is more associated with our continuous news cycle than actual market realities. In the 70 years between 1954 and 2023, the market has declined 10% or more in 41 of them. A 10% decline is the widely accepted definition of a “market correction.” The average frequency of market corrections has been once every eighteen months.
  
•  We feel markets are healthy when people are keeping them honest. What do we mean by this? We mean the market is best served by investors questioning the proper value of stocks. A healthy market involves people popping small bubbles before they become large enough to cause a market crash. Markets, like people, are emotional and prone to getting ahead of themselves. To get back to reality, the market needs corrections. These are normal and don’t indicate negative future results. Notably, intra-year declines in the S&P 500 have averaged 13.9% between 1954 and 2023, yet annual price returns have been positive in 51 of those 70 calendar years.

We believe that the most successful investors are those who embrace the market for what it is, not those who fight it. We hope the historical perspective we have provided helps you understand our current volatility as a normal part of market behavior. Whenever markets go down, we remind ourselves to maintain a long-term view and remember that historically the odds are that investors in the stock market will make money in 5 out of 7 years. However, past performance is no guarantee of future results.