Geopolitical uncertainty and risk continue to grow as the conflict in Iran and tensions in the Middle East escalate. This has, of course, inserted a tremendous amount of volatility into financial markets. Concerned investors are watching a sharp rise in oil and energy prices with a subsequent pull back in the equity market. Today’s weekly market commentary, much like last week, is a general reminder for investors on weathering volatility while ensuring risk tolerance is in line with overall goals and objectives.
The chart goes back to 1980 and runs through 12/31/2025. Plotted on the graph are calendar year returns for the S&P 500 Index, the maximum pullback for each year, average annual returns, average annual pullbacks, and recessionary periods. The calendar year returns of the S&P 500 Index are represented by the blue bars. The maximum intra-year pullback is represented by the black dots. The average annual return of the S&P 500 Index is represented by the black dotted line. The average intra-year pullback of the S&P 500 Index is then represented by the dotted red line. And finally, recessionary periods are represented by the yellow shaded areas.
As can be seen from the data, the average intra-year pullback of the S&P 500 Index -14%, while the average annual return of the Index is 11% to the upside. And as the author explains, “while the magnitude of historical pullbacks has often been severe during economic recessions (shaded in yellow), there have only been three instances when the S&P 500 ended the calendar year below -14%.” – AOM 466. As we have explained in our weekly emails, including last Friday, it is important for investors to have a well-informed understanding of how much risk they are able to take on and tolerate, while keeping in mind volatility, like that which we are experiencing now, can provide opportunities for the long term.
Further to that point, the piece explains in the close, “although a prolonged conflict that keeps energy prices elevated for months rather than weeks could complicate the Federal Reserve’s ability to cut interest rates and weigh on economic growth, we believe a recession stemming from this conflict remains unlikely. While safe havens like cash or Treasury Bills may seem attractive during periods of heightened volatility, history suggests that equities are more likely to outperform them over longer holding periods.” – AOM 466
We would ask that you review the attached piece at your convenience and please let us know if you have any questions or if you would like to discuss it further. And as we always end this correspondence, please remember that regardless of current momentum and regardless of the key takeaways in this weekly perspective, we will continue to monitor and manage with a thoughtful approach based on your specific long-term objectives. Thank you for your continued confidence and look forward to speaking soon.
