posted by: Radnor Financial Advisors
As you may be aware, stock markets have experienced a sell-off over the past few weeks, with the S&P 500 declining over 9% since October 3rd. Recognizing that short-term declines of this magnitude are always uncomfortable, and while it looks like the markets may stabilize today, there could be additional volatility going forward.
The current sell-off feels similar to the decline back in January/February, as markets have reacted to the rise in Treasury Yields (the 10-year yield rose above 3.2%), wage and employment data, and concerns about global growth and unease from trade war tensions.
While stock sell-offs are unsettling, they are not uncommon. Declines in the 10% range occur nearly once a year on average. Moreover, as shown in the chart below, market declines of varying magnitudes occur every year, with an average intra year decline of 13.8% over the past 38 years despite positive returns in 29 of these years. The short-term volatility associated with stocks is a primary reason that equities outperform cash and bonds over time.
Investors should focus on their long-term investment strategy and avoid overreacting to short-term market movements.