The Recent Decline

Written by Paul Siluch
April 11, 2025

Market drops hurt. Especially a 13% decline in four days.

You are going to hear a lot of advice telling you to “stay the course” and “ignore the dips.”

It is correct advice, but it can be hard to follow. We are entering a period of churning because markets need to digest the dramatic changes of the last month. Prepare for more ups and downs in your portfolio until the tariff wars are settled.

And they will be. But it will take time.

Investing is all about probabilities.

Millions of investors decide prices every day, and the results are historically excellent:

• Stocks go up in 7 of every 10 years. Since 1926, 73% of years have seen positive returns for the S&P 500 (NYU School of Business). It also means stocks go down 3 of every 10 years. That’s the price of investing.

• Stocks outperform bonds and GICs by a margin of 10.2% per year, for stocks from 1926 through 2023, versus 5.5% for a bond average (Morningstar). That’s a wide margin. But, bonds and GICs don’t drop like stocks do.

• Declines are more frequent than we think, yet rare enough to forget another is coming. On average, stocks decline by 10% about once every 1½ years and by 15% once every 3 years (Yardeni Research 1928-2023).

The problem today? Instead of millions of people deciding market prices, we have one man in the White House deciding them. This makes forecasting based on probabilities very hard. How does he feel today? Did he have a good sleep?

The tariff levels proposed by the White House were beyond the worst case and shocked markets worldwide.

Fortunately, America (and Canada) have ways of pulling back to the centre. We saw enough pressure applied by businesses, markets, and ultimately voters that the White House took a giant step back on Wednesday with the 90-day tariff pause announcement. Stocks rallied by 10% in a single day.

Big declines, like the one we have just experienced, follow a pattern:

• Some events cause a severe decline. Three years ago, the market fell 18% from August 2022 through October due to surging inflation, a hike in rates, and the Russian invasion of Ukraine (remember that?). This time, we fell 21% from February through April due to tariff fears.

• Bargain hunters creep in. Companies start buying their stock back and insiders pick up shares quietly. We are starting to see that now.

• Markets stage a relief rally for a week or two, until realizing the problems haven’t gone away.

• Markets fall back and may test the old lows. This can happen several times, and insiders would keep buying. Eventually, all the pessimists sell to new optimists and the markets rise again.

The bad news?

• This can take months.

The good news?

• When we see fear like this, most of the selling is over.

Source: CNN

When volatility – and fear – reach the extreme levels we saw this week, stocks have gone on to positive returns over the following 12 months. On average, +12%.

(Data from 2008 and includes the Great Financial Crisis of 2008, the near-bankruptcy of Greece in 2011, and the Covid pandemic. Source Charlie Bilello).