Volatility

Published On: March 13, 2025

Written by: Ben Atwater and Matt Malick

The market has been volatile thus far in 2025. For our regular readers, you know we have been working to mentally prepare for this roller coaster based on valuations, market concentration and narrow leadership.  As policy uncertainty helps unwind the imbalances we have been highlighting, what is an investor to do?

As always, we want to stay the course while remaining diversified. We continue to believe that diversification will be more important in the coming cycle than it was over the last couple of years. Based on reversion-to-the-mean and relative valuations, broader market participation among unloved areas of the market like value, mid-cap and international stocks seems likely.

Staying the course sounds easy when markets are cooperating, but keep in mind that the drop we have experienced so far is pedestrian. The S&P 500 has not even reached 10% “correction” territory as of this writing, although it is getting close. Unless things get far worse, what we have seen in 2025 is not even an asterisk in market history.

But, in the spirit of mental preparation, and to further argue that market timing does not work (except for the occasional stroke of luck), let us look at how some recent 20%+ “bear markets” have played out.

• The most recent bear market was in 2022 after Russia’s invasion of Ukraine coincided with inflation at 40-year highs resulting in steep rate hikes.
  • The S&P 500 dropped 25% from January 2022 until it bottomed out in October 2022. It took two years, until January 2024, for the market to retake its prior highs.
• The start of the pandemic in 2020 featured an abbreviated bear market but nonetheless included unprecedented uncertainty and fear amidst a previously unknown infection.
  • This bear market was quick, but at the same time shocking, with the market dropping 8% in a single day. The S&P 500 fell 34% in just 33 days in the spring of 2020 but had fully recovered by August of the same year. It was the quickest bear market recovery ever.
• The Great Recession bear market from 2007–2009 was a brutal period during which investors occasionally doubted the very viability of the global financial system.
  • This bear market was far more draconian and protracted than most, with the S&P 500 losing 57% of its value from October 2007 through March 2009 in a downturn that lasted well over a year. It was not until more than five years from the previous peak that the market again made new highs.

As you can see, bear markets come in all shapes and sizes. And we don’t know if we’re witnessing the next one or not.  But even if we are, it is impossible to guess how far the market will fall, for how long and ultimately when it will recover.

Instead, it is best to own quality companies, diversify and stay invested over the long term.