The stock market has experienced a notable decline in recent weeks, with the S&P 500 down approximately 10% from its recent highs. In market terms, this is known as a “correction.” While a decline of 20% over weeks or months qualifies as a “bear market” and a 10% drop in a single day is considered a “crash,” I can tell you from experience that any significant drop feels like a crash when you’re in the midst of it.
As someone who has been in the investment industry for over 30 years, I want to provide some context for these declines. Since my career began in 1992, I have witnessed the following market pullbacks:
· Declines of 30% or more: 3 times
· Declines of 20-30%: 3 times
· Declines of 10-20%: 12 times
· Declines of 5-10%: 14 times
This means that in 30 of the last 34 years, the stock market has experienced a decline of at least 5%, and in 18 of those years, stocks have dropped by more than 10%. Historically, the average annual market decline since 1950 has been nearly 14%. While the current 10% drop feels unsettling, it is below the historical average (Knocking on wood, as the year is far from over!). Of course none of this experience guarantees that I or anyone else can predict future returns.
Investor fear is palpable right now, but it’s important to remember that not every 5-10% decline turns into a 10-20% drop, and not every 10-20% correction leads to a bear market. Market downturns are part of the investing journey, and history has shown that markets recover and reward patient investors. Past performance is not a guarantee of future results, but it does provide perspective.
I have always kept politics separate from investment decisions, and I have no intention of changing that now. However, I acknowledge that political events influence stock prices in the short term. Over the years, we’ve heard predictions from both sides of the aisle that various presidents would ruin the stock market. Yet, here we are. Political noise can be distracting, but investment success comes from focusing on economic fundamentals, not partisan narratives.
Looking ahead, we believe that this market decline is nearing its end—at least in the near term. The selling pressure has been intense, but we are seeing signs that suggest the tide may soon turn.
Some key indicators we are watching:
· While the S&P 500 hit a new low last week, fewer individual stocks have reached new lows, a potential signal that selling pressure is waning.
· Institutional investors have offloaded more stocks in the last three weeks than at any other time in the past decade. Historically, such extreme selling has preceded market rebounds.
Additionally, the VIX, a measure of market volatility, has surged from below 15 to above 29 in just a few weeks. Typically, when the VIX reaches 30 or higher, investor fear is extreme, which often signals that the worst of the selling is behind us. For reference, the VIX hit a similar level in December 2024, right before stocks rallied in January. The highest VIX reading in the past three years was 38 in August 2024, during heightened stagflation fears. Shortly thereafter, stocks rebounded. We cannot predict if this will happen again yet it is a statistic I find interesting.
With the Federal Reserve expected to cut interest rates later this year—possibly as soon as May—we anticipate this will support higher stock prices. Inflation continues to trend downward, with a consensus forecast of 2.9% for the upcoming report on March 12. Moreover, 60% of traders believe the Fed will cut rates at least twice in 2025, which could lead to lower mortgage rates and a more favorable market environment.
While we do not take a stance on whether tariffs are “good” or “bad,” we recognize that they impact economic activity. That said, we believe the potential negative effects are largely priced into stocks at current levels, while the potential positives remain underestimated.
In early February, we sold stocks and raised cash in our managed accounts, anticipating that the market was running a bit too “hot.” Now, as we see signs that the stock selloff is nearing an end, we will be actively purchasing stocks in our managed accounts for clients in the coming days. We anticipate a market rebound, particularly in the stocks that have been hardest hit during this decline. Our strategy remains focused on long-term growth, and we believe this is an opportune moment to deploy capital into high-quality investments at attractive valuations.
Our team at Kessler Investment Group—John Eisenbarth, Michael Chapman, Daniel Gretzinger, and myself, along with our client service team – Laurie Schroer, Ruth Ellen Evans, Matthew Rust and Michael Bailey—deeply appreciate your trust. We remain committed to guiding you through market ups and downs and helping you achieve your investment goals.
As always, we encourage you to reach out with any questions or concerns. Thank you for your continued confidence in us.
Best regards,
Kessler Investment Group
All information in this presentation is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
Opinions shared in this presentation are not intended to provide specific advice and should not be construed as recommendations for any individual. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.