Historical Returns After a Stock Market Selloff
Markets are on edge again, this time reacting to a fresh round of tariff headlines and fears of a broader global trade war. Stocks have stumbled into correction territory, with the S&P 500 now down more than 15% from recent highs. For many investors, the question is the same as always: Is this the start of something bigger—or a setup for a rebound?
While every market selloff comes with its own set of headlines and fears, history gives us a clear lens to view what often comes next.
Corrections of this size are unsettling. They create the sense that something is broken. But the data tells a consistent story: sharp declines often lead to strong forward returns. Not immediately, but in time.
Following a 15% decline in the S&P 500, the index has been positive 1 year later 83% of the time, and the average return is 15% since 1950 (compared to the historical average of 10%). The further you go out, the better the total returns look. Even during periods of heightened uncertainty—wars, recessions, pandemics, and yes, tariff battles—markets have rebounded more often than not. The path isn’t always smooth, but investors who stay the course tend to come out ahead in the long run.
As is the case with anything I write here, this is not a political statement. However, a significant portion of the population is upset by what’s going on. It’s understandable to look at the current landscape, marked by heightened tensions over rising tariffs and government action, and think, 'This time is different. ' And in many ways, it is. Every crisis comes with new details and frustrating challenges that seem like they could have been easily avoided.
However, what remains unchanged is how markets have historically responded. Whether it was the oil embargo of the 1970s, the dot-com bust, the 2008 financial crisis, or the 2020 COVID-19 crash, each of these events felt unique and existential at the time. Similar to today, those challenges seemed created by one or more people. Yet, over and over, markets recovered and marched higher.
It’s not that we should ignore current risks. Could this be the time that the market doesn't recover? Sure, anything is possible. However, we should weigh that risk against the decades of market behavior that demonstrate resilience and long-term growth, even after major shocks.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.