Markets Look Forward. So Should Investors.
Pain that investors may be feeling from current volatility reflects markets setting prices such that expected returns are always positive.
Recent US stock market sessions have turned up the volatility to 11. (1) The decline of –10.5% over April 3–4 was the worst two-day stretch for the S&P 500 Index since March 12, 2020. Then, on April 9, the index gained 9.5%, the third-largest one-day return since 1987.
During these sorts of ups and downs, it is helpful to zoom out and view market returns over the longer term. Trailing one, three and five-year returns were in line with historical ranges, with or without the rally on April 9. And the effect of a single day’s return becomes muted when expanding the measurement period. For example, while the one-year return swung from –2.9% to 6.2% after April 9, the five-year return budged much less, from 14.0% to 16.4%.
This is not meant to trivialize recent market volatility. Rather, it is a reminder that when it comes to stocks, taking the long view may help investors avoid reacting to short-term market movements. The nine-percentage-point difference in the one-year return between April 8 and 9 illustrates the danger of panicking and divesting just one day early.
Source: FactSet. Sample period is April 10, 1995–April 9, 2025. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients.
Footnotes
(1) If this reference is unfamiliar, you need to see the movie This Is Spinal Tap immediately.
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Pain that investors may be feeling from current volatility reflects markets setting prices such that expected returns are always positive.
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