• While notable, the magnitude of these moves is rather ordinary and can be expected to occur throughout a long-term investor’s timeline. 
  • When current conditions are taken into account, they are no surprise either. 

U.S. equity market indexes plunged on June 11, 2020, with the NASDAQ Composite Index dropping by more than 5%, the S&P 500 Index down nearly 6% and the Dow Jones Industrial Average off by almost 7%. Large daily swings can take a toll on investor confidence, particularly to those lulled by the relatively low volatility over the past decade, but in the grand scheme of things, declines of this nature can be expected to occur throughout a long-term investor’s timeline.

Not so Big

When we look at daily percentage declines in the S&P 500, the decline on June 11 ranks as the 40th largest daily percentage decline since 1928. (Download the full commentary to view exhibit)

Not Unexpected

Swift, steep downside moves in the market are rarely welcomed by investors, but there have been signs that the recent move down should not have been completely unexpected:

  • The recent market rally from the March lows has also been swift and steep, but nobody complains when markets are moving up. Directionality aside, volatility is volatility. It goes both ways. 
  • We have been stating for some time that a pullback would come as no surprise, as U.S. equity prices have come so far, so fast and perhaps have gotten ahead of themselves. 
  • Economic conditions in the U.S. presently include shockingly high levels of unemployment. And the Federal Reserve just announced that some of those job losses are likely permanent. 
  • The COVID-19 pandemic continues across the world. 
  • Social unrest is a global phenomenon. 
  • The world’s largest economies (the U.S. and China) are engaging in escalating trade disputes.

Not Unusual

While declines of 5% feel huge on the day they happen, they have happened a lot lately. In 2020, there have been three days (all in March) when the decline was even steeper: 

S&P 500 Moves Lower

•    March 16: -11.98%
•    March 12: -9.51%
•    March 9: -7.60%

In 2008, there were seven days when the decline was steeper. The largest daily drop on record (-20.46%) occurred on October 19, 1987. 

Our View

Despite the stomach-churning feeling that big market declines induce, we suspect (based on futures prices) that some of this latest decline will be erased by the time you read this paper. Or maybe not. Short-term market movements are unpredictable — which is why we remain firmly committed to long-term investing strategies. It’s just too uncertain, too exhausting and likely too unsuccessful to bet your future on short-term market movements.

download the full commentary

Index Definitions

  • The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and NASDAQ.
  • The Nasdaq Composite Index is an unmanaged, market-capitalization weighted index that consists of all securities listed on the NASDAQ exchange. It is often used to gauge performance of global technology stocks.
  • The S&P 500 Index is a capitalization-weighted index made up of 500 widely-held large-cap U.S. stocks.

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