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In the Markets Now - Selloffs Through History Thumbnail

In the Markets Now - Selloffs Through History

(Baird’s Ross Mayfield, CFA wrote the following piece in May 2022) 

Market Selloff Tear Sheet

Recency bias is the tendency to over- emphasize the immediate past, often at the expense of events from longer ago. Humans are hardwired for this, and it can become an issue when market volatility pops up. We quickly forget how common volatility is, and we also easily forget how frightening market sell-offs of the past were. Rose-colored glasses tend to become the fashion statement of choice.

With that in mind, our table shows every S&P 500 sell-off since WWII. There’s a lot here, but perhaps most critical is this: selloffs may be common, but their length and severity vary widely. And while neither can be known ahead of time, understanding this is half the battle. History is useful for context above all else.

Speaking of history: since WWII, the S&P 500 has gained 8% per year (11% with dividends) on average. There’ve also been 13 recessions, 17 bear markets, and 42 corrections in that same span. Volatility is a basic part of the long-term investor’s experience – and has been for as long as humans have been involved in markets.

Every single day, there are reasons not to invest. Throw a dart at the timeline of history – you may not always hit a war or a pandemic, but any given moment was loaded with its own brand of uncertainty, often amplified by a news cycle prone to sensationalism. So in times of fear, remember to control what you can: revisit your plan, think long-term, and above all else, lean on us.

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.

This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should not consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.

For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor.

Fixed income yield and equity multiples do not correlate and while they can be used as a general comparison, the investments carry material differences in how they are structured and how they are valued. Both carry unique risks that the other may not.

Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index.

Copyright 2022 Robert W. Baird & Co. Incorporated.