As news outlets release reports about Russia invading Ukraine, inflation rising and global supply-chain issues continuing, the word “unprecedented” is being used — once again. When COVID hit us two years ago, the world began using the word “unprecedented” to describe that situation as well. Indeed, it was a situation most of us had never seen before: quarantines, lockdowns, economic shutdown. The word is used to describe just about any new global situation that arises.

These types of crises, and the subsequent stock-market downturns and recoveries, are serious, but they are by no means unprecedented. Markets and investors tend to overreact to negative news or new events. With each crisis that unfolds, while many people panic and sell assets at low prices, a small group of patient, methodical investors view the stock market collapse as an opportunity.

What’s going on today might seem unprecedented. The stock market is sure to react to events like these, and it may come as a shock to some. However, the past two years in the stock market have also been unprecedented. Last year, the S&P 500 hardly saw a 5 percent pullback, and on average, the market pulls back 14 percent every year…how unprecedented! In March 2020, the market fell about 33 percent in 30 days. It was the fastest drop in market history…unprecedented. However, the market recovered all of its losses in only a handful of months…unprecedented once again!

The Stock Market Will Always Fluctuate

History shows us that markets dip after geopolitical events and often recover very quickly. Ned Davis Research studied the 28 worst political or economic crises over the six decades prior to the 9/11 attacks in 2001. In 19 cases, the Dow Jones Industrial Average was higher six months after the crisis began. The average six-month gain following all 28 crises was 2.3 percent.

On Sept. 10, 2001, the day before the 9/11 attacks, the Dow Jones Industrial Average (DJIA) closed at 9,605.51. The stock market closed for a few days and re-opened 17.5 percent lower, several days later. Just six weeks later, by Oct. 26, the Dow was trading higher than where it had closed on Sept. 10.

The markets correct virtually every year; corrections between 5 and 10 percent in the S&P have been regular occurrences. Since 1946, there have been 84 declines of 5 to 10 percent, which works out to more than one a year. The market usually bounces back fast from these modest declines; the average time it takes to recover from those losses is just one month.

J.P. Morgan reports the impact that pulling out of the market has on a portfolio. Looking back over the 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. That’s a significant difference for only 10 days over two decades! Putnam Investments found similar results by studying the data from 2003 to 2018. If you were fully invested in the S&P 500, your annualized total return was 7.7 percent during that time. But if you missed the 10 best days in the market, it dropped to just 2.65 percent.

Don’t Panic or Get Out of the Stock Market; Do This Instead

In times of uncertainty and global turmoil, it’s normal to feel like you need to make a change. In almost all circumstances however, the right move is to not make any lasting changes. Here are some tips to help you ride out the storms.

1. Ignore the news headlines. Often, news headlines are not what actually drive the market; instead, corporate profits tend to have more impact, and those still remain strong.
2. Keep situations in perspective. Regarding Ukraine, the country’s entire economy is around $100B per year. Walmart does that amount of business in three months. The actual economic risk related to this situation isn’t as great as it might seem, given the media coverage. More importantly, our thoughts and prayers go out to those living in Ukraine and their families. The human element is of much greater significance.
3. Consider putting cash to work now. Use tax swaps and convert from tax-deferred to tax-exempt investments to benefit from the volatility. Our team can help you with this.
4. Always remember our three-bucket approach to working with our clients. Your financial plan has cash and bonds built into it, for these types of seasons, so that you don’t have to react out of fear. Our entire team is helping clients one by one. Most of our clients have been able to focus on family and friends while ignoring the temporary market pullbacks and having faith in the market’s comeback. Some people are nervous. We understand, and we hold deep empathy for those feelings and are here for you.

If you have questions for our team, do not hesitate to reach out; we are here for you and your family! Because we take a customized approach based on your individual needs and objectives, you are allocated for today’s market environment. We see challenges ahead with higher inflation and increased volatility, but again, these are not new or unprecedented. Our process is proactive, not reactive. The work we do is not based on forecasts or predictions, but on you, your cash needs and your personal vision.

Remember — although things may seem unprecedented, they are not.

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Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

The stock indexes mentioned are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. All investing involves risks, including the principal amount invested. No investment strategy can guarantee your objectives will be met.

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