The Market Drops Every Year . . . and Ends Up Higher Over Time The market drops I refer to take place over a period of a few months within one year or starting in one year and running into another. These short periods of weakness are not to be confused with 12-month changes from yearend to yearend. Since 1980, the Standard & Poor's 500 Index has had average interim drops of 14.3%. In more than half of those years, the corrections, as they are euphemistically known, were 10% or more. We hit the worst air pocket back in late 2008 to early 2009: 49%. When this happened, more than a few investors started to wonder what was going on. Yet each time, the pullback was followed by a full recovery and annual returns ended up positive in three out of four years. The lesson learned from this pattern is that short-term movements are for the most part reflections of changes in investor psychology. One day, there may be a series of encouraging earnings reports. The next day,
Investment and economic observations by N. Russell Wayne, CFP, MBA. Mr. Wayne is the president of Sound Asset Management, inc. and former Managing Editor of The Value Line Investment Survey.