Market Cycles and Expectations: Staying Focused Amid Volatility
By Frank Vance
As we step into the second quarter of 2025, the energy and enthusiasm that fueled the markets over the prior three years appears to have faded. Reflecting on the past five years, we’ve witnessed significant drawdowns—over 30% in 2020 and around 20% in 2022. During each of these bear markets, fears of economic collapse ran high, with comparisons to 1929, 2000, and 2008 dominating discussions. Yet, time and again, cooler heads prevailed, and the markets pressed forward.
Today, the S&P 500’s five-year annualized return stands at approximately 19%—nearly double the historical average for a period of this length. Looking further out, the 10-year annualized return sits at 12.5%, while the 15-year figure is an impressive 13%. By any measure, patient, long-term investors have been well rewarded. While these returns are remarkable—and no rational investor would complain—the issue lies in expectations. The belief that the market’s strong performance will continue indefinitely or the irrational envy that surfaces in times of excess can lead to unrealistic outlooks. Expecting long-term returns to remain at double the historical average isn’t sustainable. At some point, reversion to the mean is inevitable—history proves this time and again.
The key from here is to remain unemotional. This is precisely why we build financial plans and set long-term return targets—to stay focused on end goals. Falling into the mindset that “it always goes up” can be dangerous because, simply put, it doesn’t. Diversification works. Uncertainty is often cited when markets decline, but, in reality, uncertainty is always present. That’s precisely why investors earn a risk premium for putting their assets to work.
Turning to the markets...
Recent volatility has been driven by a mix of factors: a slowing economy, rising government debt, higher interest rates, and global tariffs. As of today (4/3), the S&P 500 is down 7-8%, while most balanced portfolios have declined between 3% and 4%. While these returns wouldn’t typically warrant a strong reaction, the level of emotion surrounding this drawdown has been notable.
Digging deeper into returns, it’s important to remember that the S&P 500 is a market-cap-weighted index, meaning larger companies carry more influence. Currently, the “Mag 7”—Apple, Amazon, Microsoft, Google, Nvidia, Meta, and Tesla—make up a significant portion of the index. Each of these companies is in the midst of a bear market, with Nvidia down over 30% and Tesla more than 50%. If you remove these names from the index and focus on the remaining S&P 493, the market is close to flat.
Looking ahead, further downside is always possible. Regardless, we remain in a neutral-weighted position with an overweight allocation to equal-weighted indexes and large-cap value companies. We will continue to monitor the markets closely and take advantage of any tax-loss harvesting opportunities that arise. We will also look at opportunity on the buy side as we have ample “dry powder” to allocate if it makes sense. In times of volatility, staying unemotional is critical. Short-term performance has no predictive power over long-term success.
As always, please don’t hesitate to reach out if you’d like to discuss the markets or your specific financial situation.
Ed, Frank, & Tammy
Edward Stiles, Frank Vance
200 N Union St.
Kennett Square, PA 19348
cell 610-745-1931
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, do not incur fees, charges, or expenses, and investors cannot invest directly into an index. Past performance does not indicate or guarantee future results. All references to markets, equities, bonds, interest rates, magnificent 7, individual stocks, or any other security is notional and for illustrative and educational purposes only. This material is for educational purposes only and is intended solely for clients of Retirement Capital Advisors only. It is NOT investment advice, a solicitation or invitation or recommendation to buy or sell any security or investment product. Please contact your own financial advisor for your specific investment situation.