It is time again for “the Greatest Chart Ever”.* And to extend the expression, often “the greatest” takes a while to develop.
The current situation that may take a while is tariff policy by the US with respect to trading partners. Tariffs are in effect for barely one week. Markets in short order have punished stock prices and caused heavy volatility in US Treasuries. Most of the volatility is due to uncertainty on a large scale about how and how much tariffs will affect availability, demand and end prices for consumer and industrial goods globally. That is a massive amount of goods and only time will tell. Stock markets do not like uncertainty – even if the eventual goal is to make a positive difference.
Stock and bond markets have seen heavy volatility before. The reasons are varied – (for stocks, from left to right in the timeline above)
- recession in the early 1980’s (down)
- easy monetary policy following the recession (up)
- real estate crisis in the late 1980’s and 1990 (down)
- easy monetary policy (up)
- dot-com bust and resulting recession in 2000-2002 (down big and for longer)
- economic recovery (up)
- “great recession” and financial crisis of 2007-2008 (down big)
- …and so on.
The message of the chart is that volatility is inevitable. Markets can experience intra-year or even multi-year periods of negative returns due to economic and fiscal policy reasons. Average returns in the particular 45-year period measured have been positive at an average annual +10.6%* despite an average (average means “sometimes higher, sometimes much lower”) intra-year decline of -14.1%.
Could this be a year when a stock market decline lasts longer or is larger than the average -14% decline peak to trough? So far, the answer is partly YES. (In 2025 so far, the peak to trough drop between January and early April was more than -17%.) The tariff situation may likely take longer to play out, requiring patience and a plan. Most TGIF 2 Minutes readers have both – and patience is a virtue. If a plan needs adjusting or review – or affirmation – please reach out to talk it through.
*Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. “Returns for illustrative purposes only… calendar year returns from 1980 to 2024”.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.