Market Update 3/31/25

Selling Out?

Q1 for the S&P 500 was rough, with the index falling by 7%. That number is somewhat misleading because the index hit an all-time high in mid-February and then dropped 10.5% in just six weeks. Jolts like this stir up all kinds of investment worries, as we are keenly aware of market rotations. However, selling out of the market solely due to a rapid decline has consistently proven to be ineffective.

Analyzing the five worst single-day declines in market history reveals a few key facts. The average decline on those days was 11.6%, with the largest being Black Monday on October 19, 1987, when the market fell 20.47%. However, after all five instances, it took an average of only 65 days for the market to return to its previous high. One year after each drop, the market's average return was an impressive 40.8%.

If history is a guide, there is strong evidence suggesting that those who remain patient and invested are rewarded for their discipline in a reasonable amount of time. That doesn’t mean tactical portfolio adjustments shouldn’t be made, as we have done this year, but they should be strategic rather than a full liquidation of investments. The next market high may arrive before you have the chance to reinvest.