The last couple of weeks have felt rough. The S&P 500 is down about 4-5% from its mid-October peak, the Nasdaq has taken an even bigger hit, and a lot of the news outlets have people asking whether it’s time to “do something.”
Here’s what we believe is driving the current jitters:
- High valuations (the Magnificent 7 are still trading at 30-35× forward earnings even after the pullback) (source: FactSet and Morningstar)
- Growing skepticism about whether the massive AI capex spend ($300–350 billion combined for Amazon, Microsoft, Google, Meta, etc. in 2025 alone) will actually produce the earnings growth the market has priced in (source: CNBC)
- Fed funds futures now pricing in less chance of a December cut and only about 50 bps total for all of 2026 – a far cry from the 5-6 cuts people were expecting earlier this year (source: CME Group)
- Ongoing tariff and fiscal policy uncertainty (10-25% universal tariffs would be inflationary and crimp margins) (source: JP Morgan)
- A classic “good news is bad news” reaction to still-strong economic data (GDP, etc.) that keeps the Fed on hold
Put it all together and you get the sharpest sell-off we’ve seen since April. Perfect recipe for nerves.
But here’s the thing I keep coming back to — and the exact same chart I showed you in April is even more relevant today.
Even with an average intra-year drop of ~14%, the S&P 500 has finished the year positive roughly 75% of the time since 1980. We had a 10% drop in 2023 and an 8% drop in 2024… and both years closed higher.
Source: JP Morgan
The real killer isn’t the pullback. It’s missing what comes next.
If you stayed fully invested in the S&P 500 from 2005–2024, you earned ~10.35% annualized (with dividends). Miss the 10 best days over those 30 years and your return falls to 6.14%. Miss the 20 best days → 3.46%. Miss the 30 best days → 1.31%.
Those best days typically cluster right after the worst days. The market doesn’t ring a bell and say “okay, the storm is over, you can get back in now.” It can move quickly higher on the way back up, and the people who panicked and went to cash watch from the sidelines.
I’m not saying this pullback is definitely over. It might get worse before it gets better. But I am saying the long-term math hasn’t changed, and neither has our process.
Volatility is often considered the entry fee for the kind of long-term returns you may need to retire comfortably. Our job is to keep that fee as low as possible through diversification(*), rebalancing, and tax management — but we still have to pay it.
So, if you’re feeling anxious right now, let’s talk. That’s what we are here for. Please reach out and talk with us before making a permanent decision (selling great companies at depressed prices) based on a temporary feeling.
Are the best days still ahead of us? The data says they usually are. Let’s make sure you’re in the market when they show up.
*While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.
The NASDAQ (National Association of Securities Dealers Automated Quotations) Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the NASDAQ stock exchange.
The Magnificent 7 stocks are a group of mega-cap stocks that drive the market’s performance due to their heavy weighting in major stock indexes such as the Standard & Poor’s 500 and the Nasdaq 100. The group’s seven stocks earned their name in 2023 due to their strong performance and ability to power indexes higher seemingly without help from smaller stocks. The Magnificent 7 includes the following: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG and GOOGL), Amazon (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META).
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The views and strategies described may not be suitable for all investors. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. Please notify us if there have been any changes to your financial situation or your investment objectives, or if you would like to place or modify any reasonable restrictions on the management of your account.