Financial Planning Fridays #103: Market Returns After 5% Pull Backs

Hi Friends. On August 5, 2024 the market was down more than 8% from the last peak reached on July 16, 2024. According to our plan, we rebalanced our client accounts and purchased additional stock. We do this every time the market is down 5% or more from our previous rebalance. Let’s look together at how that strategy has worked out since 1980. This great chart from Goldman Sachs shows the forward results of the S&P 500 after a 5% downturn after 1, 3, 6, and 12 months. The axis on the right side shows the percent of time the market is positive after a 5% pullback for each time period. It is positive about 70% of the time after a month, and positive 85% of the time after 6 months. This tells me that most 5% market pullbacks are not the start of a larger decline but instead are great opportunities to add to stock at a temporarily lower price. Furthermore, the data shows that in the 6 months after a 5% decline, the median and average market return is more than 6% which would have erased the previous 5% loss in the S&P 500. And finally, both the median and average return after 12 months has been well above 10%. We have had 39 5% pullbacks in the S&P 500 since 1980. From our perspective, that means we have had 39 excellent buying opportunities for our clients, opportunities that we will continue to look for and take advantage of. Thank you and I look forward to talking with you next Friday. Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.