Challenge or Opportunity?
The stock market has been one of the most powerful tools for building wealth, but that growth has never come without setbacks. A single dollar invested in the S&P 500 in 1925 would be worth $1,285 today after adjusting for inflation. That kind of return doesn’t come from smooth sailing. It requires staying invested through the inevitable ups and downs.
Market declines are not a sign of failure. They are part of how investing works. The long-term rewards have always gone to those who hold steady, even when things look uncertain.
Consider this:
- Stocks have fallen at least 10 percent more than 100 times, which happens about once a year on average.
- Drops of 15 percent or more have occurred roughly every two years.
- Declines of 20 percent or greater have happened 23 times, or about once every four years.
- There have been 10 instances where the market dropped by more than 30 percent.
- Three times, markets lost more than half their value. Despite all of this, the overall trend has always moved higher. Market volatility is not the biggest risk for most investors, but losing patience and pulling out at the wrong time poses a real danger to long-term strategy
What Is Driving This Market Drop?
Markets have taken a hit, and investors are feeling the pressure. The Nasdaq and S&P 500 have both dropped more than 10 percent from recent highs, officially entering correction territory. While tech stocks have taken the biggest hit, concerns across other sectors are playing a role as well.
Several factors are making investors nervous:
- Interest Rates – The Federal Reserve has hinted that expected rate cuts may take longer than hoped, which is unsettling markets.
- Trade Tensions – Uncertainty around tariffs and economic policies has raised concerns about corporate profitability.
- Earnings Slowdown – Some of the biggest companies have revised their profit expectations downward, leading to a shift in stock valuations.
- Tech Sector Weakness – The stocks that have fuelled much of the market’s recent gains are now losing steam, which is affecting the broader market.
Short-Term Setback or Something Bigger?
The U.S. economy is slowing. The Atlanta Federal Reserve now expects a 2 percent contraction in GDP for the first quarter of 2025, reversing the 2.3 percent growth seen in the previous quarter. JPMorgan has raised its estimate of a U.S. recession this year to 40 percent
Economic downturns do not always go hand in hand with stock market declines, but history suggests that when growth slows, equities tend to struggle. During the past three recessions, the S&P 500 dropped by an average of 39 percent. Investors should be prepared for the possibility of more market turbulence.
Tech Stocks: Driving Growth or Creating Risk?
Markets have become increasingly dependent on a small group of companies. Today, the top ten stocks in the S&P 500 make up 34 percent of the index’s total value. That is higher than before the dot-com bubble in the early 2000s and the financial crisis of 2008.
These large-cap stocks have been responsible for much of the market’s recent gains, but their outsized influence also increases the risk. If they continue to struggle, the entire market could feel the impact. Investors who have put too much into a few high-profile stocks may be more exposed than they realize.
Why Market Declines Are Normal
A 10 percent drop in the S&P 500 happens nearly every year. Despite this, the index has always rebounded to new highs. While individual stocks may not recover, broad market indexes have proven resilient over time. This is why staying invested and maintaining a diversified portfolio remains one of the best ways to build wealth.
What Should Investors Do Now?
Rather than making decisions based on emotion, now is the time to take a step back and assess the bigger picture:
- Stick with the Plan – Investment decisions should be based on long term goals, not temporary market swings.
- Keep Investing – Market declines often create opportunities for those willing to take advantage of lower prices.
- Review Portfolio Balance – Being too concentrated in one sector or region increases risk. A well-balanced portfolio helps smooth volatility.
Market Volatility Is an Opportunity, Not a Threat
Volatility is not a reason to panic. It is a reminder of why having a strategy matters. History has shown that those who stay invested through market fluctuations come out ahead in the long run.
If you are concerned about your investments or want to explore the new opportunities volatility can bring, Skybound Wealth’s team of experienced advisers are here to help. Get in touch to discuss your portfolio and plan for the future.
