Pullback & Perspective
It’s definitely been a bumpy start to the year, and we know it’s not easy – especially at times like these – to focus on the meaningful data… and not the fear-inducing noise that financial and political news stations hurl at their audiences.
If you recall our note from last month we shared that the first quarter of a post-election year tends to be the worst quarter for that year. Second, we mentioned that February and March tend to be the weakest months of the year. In fact, our exact words were:
“In fact, the 1st quarter of a post-election year tends to be the worst of the four quarters and February and March tend to be the weakest of those first months. So, from a seasonal standpoint, we’re now facing the two toughest months on average, so don’t be surprised if you see negative numbers on your accounts in the near term. In fact, I’d expect it!”
…and just as expected, here’s where we are from a seasonality perspective. Not necessarily fun, but not a surprise either.
Here’s the “in a nutshell” version:
- Tariff uncertainty continues to drag on stocks and is the main driver behind the volatility we are seeing.
- Until markets get some clarity on where tariffs and trade relationships will settle out, we expect continued choppiness.
- Pullbacks of 5–10% are NORMAL — the S&P 500* averages three of them per year. Corrections (10–20% drops) are less common, but also part of the normal market process. The S&P 500 experiences one 10% correction per year, on average. The last one came back in October 2023 when the index fell 10.3% from peak to trough.
- The maximum drawdown for the S&P 500 has averaged about 14% per year since 1980. In positive years, the average maximum drawdown is still 11%. Simply put, this amount of volatility is normal. It reminds us why diversification is important and gives long-term investors an opportunity to buy stocks “on-sale” and enhance returns over time.
- We would expect the market’s bottoming process to begin playing out once markets get some clarity on where tariffs might land and can adjust economic and profit expectations accordingly. That timetable is more likely to be measured in months rather than weeks.
The bottom-line… We’ve seen this before and we will see it again. And as always, we know that volatility and unrest in the market often provide the best opportunities for future success.
As always, thank you to you, our clients – our “extended family” – for your continued trust and confidence. We are here to help, so please reach out with any questions, concerns or if you’d just like to chat! You can reach us directly at 518-877-6600 or via email at leo@nicoterawealth.com / austin@nicoterawealth.com.
Talk soon!
Leo & Austin
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*The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. Objectives mentioned are not guaranteed to be achieved. All performance referenced is historical. All indices are unmanaged and may not be invested in directly. Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction costs. Investors should consider the tax consequences of moving positions more frequently. All investing involves risk, including loss of principal.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.