A Ray of Hope for Today’s Market

You know life is full of surprises. There are periods of smooth sailing when things go as planned…and times when you don’t think you’ll make it through. Inevitably, some “wise” friend or family member says these magic words: This too shall pass!

But when you’re in the throes of a trying situation, it certainly doesn’t feel like that will EVER happen. Yet, it usually does…and life moves forward…and those difficult memories fade.

This year's performance of the U.S. stock market is akin to one of those challenging times. After the market entered bear territory for a bit in June—meaning the S&P 500 fell at least 20% from its high—investors are grappling with a significant loss of wealth—in retirement accounts, kids' college accounts, or investments aimed at helping them buy a house.

For some, it certainly feels like the decline will go on forever. But the historical performance of the U.S. stock market tells us this, too, shall likely pass. Unfortunately, seeing a long-term chart of the S&P 500 moving upward over time is of little comfort when you're in the eye of the storm. We know because we also see these charts and inherently know that the market tends to move higher over the long term. And we still get anxious watching its continuing slide.

But we found one chart that has put a little pep in our step…is breaking us out of the depths of despair…or whatever metaphor you want to use for giving us a ray of hope.

Data show returns of the Fama/French Total U.S. Market Research Index from July 1926 to December 2021. Source: Dimensional.com

However, this chart is not for the faint of heart. Over 90 years of data show that, on average, U.S. stocks have delivered positive returns one, three, and five years after steep declines of 10% to 30%. In other words, it suggests now could be an opportune time to buy.

We say it's not for the faint of heart because it's not mentally easy to heed the advice of buying when you feel like selling. It certainly may require nerves of steel!

But that’s when having a professional money manager can help—because they make those hard decisions for you. While it’s not easy to hear someone say that this market provides a significant opportunity to buy great companies at low prices—we believe it tends to be true. In a downturn, “the winners become very obvious,”¹ but only if you’re looking. And that’s just what our portfolio managers are doing.