Lessons from Market Volatility this Spring
MODERNIST’S ASSET CLASS INVESTING PORTFOLIOS ARE STRATEGICALLY INVESTED WITH A FOCUS ON LONG-TERM PERFORMANCE OBJECTIVES. PORTFOLIO ALLOCATIONS AND INVESTMENTS ARE NOT ADJUSTED IN RESPONSE TO MARKET NEWS OR ECONOMIC EVENTS; HOWEVER, OUR INVESTMENT COMMITTEE EVALUATES AND REPORTS ON MARKET AND ECONOMIC CONDITIONS TO PROVIDE OUR INVESTORS WITH PERSPECTIVE AND TO PUT PORTFOLIO PERFORMANCE IN PROPER CONTEXT.
Volatility clustering is a well-known phenomenon in financial markets. In other words, volatility often comes in waves—big price swings are usually followed by more big swings, whether up or down, while calmer periods tend to bring smaller, less noticeable movements.
Take the month of April as an example. From the market high on February 19 to April 4, the S&P 500 fell nearly 17%, with most of that drop occurring over just two trading days following a major tariff announcement. The volatility continued throughout the month, when markets experienced dramatic daily swings.
Consider the best and worst days for the S&P 500 that month:
3 WORST Days in April:
April 4: -5.97%
April 7: -4.5%
April 8: -3.2%
3 BEST Days in April:
April 9: +9.5%
April 10: +2.3%
April 22: +2.5%
When volatility strikes, many investors abandon a thoughtful financial plan. The pain of loss outweighs the pleasure of gain, leading investors to sell when markets decline, often missing the gains that are soon to follow.
Marketing Timing Can Be Costly
Investors might be wondering if they could have benefited by selling in April before the market declines. The data below shows how returns looked for investors who attempted to time the market or stayed invested. This illustrates why missing just a handful of the market’s best days can significantly impact long-term performance.
Impact of Market Timing (April Performance):
Missed the 3 worst days: +16.36%
Missed the 3 best days: –13.59%
Stayed fully invested: +0.28%
Market Volatility is Part of the Process
While market downturns are unsettling, they play a crucial role in correcting excesses and setting the stage for more sustainable growth. Bull markets, on average, last about 6.6 years and typically rise in a steady fashion. The longest on record ran for nearly 15 years. In contrast, bear markets are usually much shorter—averaging just 1.3 years—but their declines are often sharp and severe, sometimes unfolding in as little as three months—or in the case of April, a couple days.
In our view, patience and diversification remain essential to long-term investment success. Maintaining a diversified portfolio—including fixed income, international equities, and alternatives—has often shown to offer greater resilience during periods of volatility than portfolios concentrated in a few high-performing areas.
