How much can change in a week, you ask?

How much can change in a week, you ask?

By Frank Vance & Ed Stiles

With yesterday's market drop, the S&P 500 had fallen nearly 17% in just five calendar days. That places 2025 alongside some of the most notorious years in market history—1929, 1980, 2008, and 2020. And not for the best of reasons. Seeing your portfolio decline is never easy. This moment is no exception. What makes it particularly unnerving is the sheer speed of the drop. Very similar to 2020 in that regard. We imagine many of you have been checking your numbers more often than usual—we get it, it’s not pleasant. But…. here’s the important part: it’s not all bad news. As of today (4/9 at 1:30pm) the S&P500 has recovered 6 percent in about 10 minutes. The drama and volatility continues!

As we have opined many times, volatility and drawdowns are part of the investing journey. Historically, a 10% dip in the S&P 500 occurs almost every year. A 20%+ correction? Every two to three years. We can’t predict exactly where the market is headed next—but can tell you how the emotional cycle typically unfolds. It usually starts with panic and anxiety (right where we are now). Then come the headlines—“this time is different” (those are already popping up). Eventually, when assets are deeply discounted, many investors choose to step aside, waiting for the “dust to settle”. Philosophically, choosing to sit out until “it’s better” which emotionally is when the markets are much higher. From a basic math perspective, it doesn’t work. If ups and downs are part of the same linear continuum, selling low and buying back higher destroys long term returns.

Consider this example—one of our favorites. A $10,000 investment in the S&P 500 from 2003 to 2022 would have grown to nearly $65,000 if you had simply bought and held. But if you missed just the 10 best days during that period, your return would’ve been slashed by more than half. And here’s the kicker—those 10 best days often happen right in the middle of market turmoil (like now).

The takeaway?

Investing based on emotion rarely ends well. No one has a crystal ball, but one thing is certain: letting emotions dictate your strategy is a fast track to underperformance. Now, let’s talk about the bright side….

Despite the carnage in equities—with most major indexes down 10–20% and individual stocks hit even harder—diversification is finally doing its job again. Bonds have held up well amid falling interest rates. The U.S. Aggregate Bond Index is actually up 2–3% year-to-date.

In addition, various types of equities have posted vastly different returns during the decline. Growth is down a lot more than value, small is down more than large. Just like last time(s), valuations were stretched. Stocks were a bit pricey. Old stogy bonds were a decent add with 4 to 5 percent yields. Lots of folks (not our clients, but others) were chasing returns by adding to the things that were working in the immediate. The “magnificent 7” were todays variation of the nifty fifty and the internet plays. As with most of these things, the balanced/diversified and conservative crew is down some. The more risky are down more. The Nuevo aggressive are getting walloped. You get what you pay for.

Enough philosophy, down to the inner workings. Where were we going in and what’s the forward. Quite simply, we manage portfolios on what’s called a “tactical allocation basis”. They are not static, but change over time with expectations and economics factored in. Think in terms of a stop light, green-yellow-red. Red for underweight equity, yellow for caution (neutral), Green for overweight equity (more optimistic). We state our position when we put out a ranting and even give some words as to specifics. In this case we were neutral with low/intermediate duration on investment grade fixed income.

Looking ahead, being neutral gives us a lot of wiggle room. If this current event grinds lower, and valuations get better, you can expect us to be buyers. Rebalance plus add some to equity. We haven’t been “green” since mid 2022 but more downside might get us there in the near term. And, as always, we use downside volatility to tax loss harvest and this time will be no different. 

We will leave you with one final note: last week’s VIX reading ranked among the top 20 highest since 1990. The VIX measures market volatility—how “nervous” investors are. You don’t need to understand the mechanics, just this: historically, when volatility has spiked to this level and held for a full week, forward returns have been some of the strongest on record. Makes sense when you think big picture.

To bring this writing to a close, market declines are not necessarily predictable, but they are frequent. While the reasons are different the media response is always the same. From an economic standpoint, the uncertainty is usually worse than the reality of the situation. This is our belief this time as well. We had believed recession was imminent and the ongoing trade saga will probably add to that. On the counter side, the underlying economics globally are pretty strong which is a good going in position.

If you would like to talk in more detail or review your own portfolio at any level of detail you wish, let us know and we can connect.

Ed, Frank, & Tammy

Edward Stiles

200 N Union St.

Kennett Square, PA 19348

cell 610-745-1931

stilesed@retire-me.com  frank@retire-me.com

Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network

All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. All references to markets, equities, stocks, crypto, bonds, individual stocks, interest rates, Muni’s, and treasury securities, are notional and for informational and explanation purposes only. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.