After a 20% Drop, Then What?
Markets continue to be volatile and are fluctuating based on speculation about what the Federal Reserve will do in the future. It all comes down to inflation at this point; that is something we are watching very carefully. With all the uncertainty around interest rate and inflation, markets have been under pressure (both equity and fixed income markets).
I thought you might find it interesting what average returns for equity markets were after a 20% downturn. The table below highlights the data in the last 70 years of 20% or more corrections.
As you can see, in the majority of cases, markets have historically bounced back despite fears that a recovery did not seem possible. Interestingly, when markets drop 20% this is often when retail investors feel uncomfortable and sell.
A long-term perspective is important when one invests. This table illustrates why that tends to be the right strategy for most investors.
Source: LPL Research, FactSet 5/20/22