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The following is an excerpt from Kirr Marbach & Co.’s second-quarter client letter, available at www.kirrmar.com.
After the S&P 500 Index closed at an all-time high on Feb. 19 (its 60th all-time high since the beginning of 2024 and third of 2025), stocks plummeted with the S&P 500 entering “correction” territory (down more than 10%) on March 13, just 16 trading days later. It briefly entered a tariff-induced “bear market” (down more than 20%) on April 7 (intra-day low).
The Wall Street Journal headline summed up the first quarter misery, moaning “U.S. Stocks Post Worst Quarter Since 2022 on Threat of Trade War.” It got even worse after “Liberation Day” on April 2, with the WSJ headline blaring “Trump’s Tariffs Wipe Out Over $6 Trillion On Wall Street in Epic Two-Day Rout” as U.S. stocks had their worst week since the March 2020 COVID-induced carnage.
Indeed, as of April 8, the S&P 500 was off to one of its worst starts in history, down 15.3% since the end of 2024. Looking at the first 66 trading days of each year going all the way back to 1928, only 1932 (-20.4%), 1939 (-18.9%) and 2020 (-17.6%) were worse. To put the frightening start of 2025 in perspective, the 1932 and 1939 declines were both during the Great Depression, and the 2020 plunge was during a global pandemic. So that’s some pretty scary company!
Similarly, Hartford Funds examined the 10 worst two-day declines for the S&P 500 and subsequent recoveries. The “Trump Tariff Fallout” two-day decline of -10.5% on April 3-4 was the fifth-largest and trailed only those experienced during the 1987 Market Crash (-24.6% and -16.2%), 2020 COVID-19 Pandemic (-13.9%) and 2008 Global Financial Crisis (-12.4%).
Some people hate roller coasters. Unfortunately for some, market plunges and the accompanying uncertainty and frightening headlines can scare them into transforming from long-term investors (who understand short-term volatility is the price you pay for letting the miracle of compound interest create long-term wealth) to short-term speculators (selling stocks to avoid additional pain and “waiting until the dust settles” to reinvest).
As we now know, the S&P 500 would stage an epic recovery following the April low, posting the tenth-biggest 12-week S&P 500 total return gain in history (up 25% from the April low). Not only did the S&P 500 recover all the ground lost in the swoon, but by June 30 it had posted its fifth all-time high of 2025.
On cue, the WSJ headline trumpeted “Breakneck Rebound For S&P 500 Sends Index to New High.”
Referring back to the study from Hartford Funds: After the nine prior worst two-day declines, the S&P 500 gained an average of 28.3% one year later. Further, if you invested $10,000 in the S&P 500 on Dec. 31, 1986, and simply left it alone, you would have ended up with $581,677 by June 30, 2025. According to the miracle of compound interest and related “Rule of 72,” you would have doubled your investment every 6½ years (72/11.12% average annual return for period = 6.5).
The rub: Only those with the fortitude to stick to their plan and “stay on the roller coaster” through not only all 10 worst two-day declines but the five harrowing bear markets and 14 corrections during the period reaped the rewards.
According to Crandall-Pierce, going back to 1945 the S&P 500 has experienced 41 bear markets or corrections—or one or the other every two years. While the recent near-bear market was definitely unpleasant, it was also certainly unexceptional.
As Jay Mooreland, certified financial planner of the Behavioral Finance Network, says, “Selling during scary and uncertain times usually is referred to as ‘getting to safety.’ While getting to safety provides an immediate psychological benefit, it often results in a very real financial cost. Next time you feel the need to ‘get to safety,’ perhaps it can be re-framed as ‘reducing my future return,’ because no one sells and gets back in at the bottom. The only way to participate in all the gains of the market is to ride out all the temporary losses that come along the way.”
Investors face many significant challenges today, including the unresolved tariff/trade war, our nation’s rapidly deteriorating fiscal position and continuing global conflicts. We’ve always had to deal with serious challenges.
We can’t predict the future—nobody can. Even if you could, you don’t know how the markets will react. For instance, if you knew the U.S. would initiate a global trade war in early April and join Israel in bombing Iran in late June, you probably wouldn’t want to be invested during the second quarter, which would have been a major mistake. Each crisis can feel like the end of the world when it happens, but our experience over our now more than 50 years in business has been that despite the uncertainty and pain, markets have eventually bounced back.
In other words, by investing in stocks, you also bought a ticket to ride the roller coaster. So buckle up!•
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Kim is Kirr Marbach & Co.’s chief operating officer and chief compliance officer. He can be reached at 812-376-9444 or [email protected].
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