A Long-Term Perspective on Market Downturns

What is a bear market?  A pullback is a market decline of 5%. A correction is a market decline of 10%. A bear market doesn’t occur until the decline is 20%. These declines are nearly impossible to predict, but you can prepare. While volatility has been relatively muted over the past decade, many investors remember living through the last few bear markets and the stress that comes along with watching your account balances go down month after month.

Reviewing the longest timeline of market downturns reveals an important perspective.  Volatility may be hard to predict, but the patterns are familiar. The chart below displays the widest perspective of downturns over time.

Quick Take: While volatility is a normal part of investing, the sharpness and longevity of each bear market varies widely and, in many cases, S&P 500 cumulative returns are up significantly following a bear market.

S&P 500® Cumulative Returns2 (%) (1926-2022)

Source: FactSet and NBER. As of June 30, 2023. S&P 500® (gross dividends reinvested) in USD. Bear markets represented peak-to-trough price declines of 20% or more in the S&P 500® Index. Bull markets reflect all other periods. Monthly returns are shown for S&P 500® Index, except for the COVID-19 Crisis, which is daily. The indices are unmanaged, are not available for investment, and do not incur expenses. Click here for index definitions. Past performance is no guarantee of future results.

1  Based on the closest month-end date after the bear market end date. Uses monthly returns.
2  Monthly returns are shown for S&P 500® Index, except for the Global Pandemic, which is daily.
3  Average does not include most recent bear market.

The saying “time in the market not market timing” are words most investors should live by. No one knows when the biggest returns or steepest drops will come. Keeping calm and remaining invested is critical. Missing as few as 10 days can significantly impact returns.

Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. Diversification does not guarantee a profit or protect against a loss in declining markets.

Investments in debt securities are subject to credit and interest rate risk. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall.

Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets.

Investments in small-capitalization companies are subject to greater price volatility, lower trading volume and less liquidity than investing in larger, more established companies.

Real estate investments are subject to factors such as changing general and local economic, financial, competitive and environmental conditions.

Alternative investments are speculative, subject to high return volatility and involve a high degree of risk including, but not limited to, the risks associated with leverage, derivative instruments such as options and futures, distressed securities, may be illiquid on a long term basis and short sales. There can be no assurance that these types of strategies will achieve their objectives or avoid substantial losses. Alternative investments may also be subject to significant fees and expenses.

Investments in emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

Market Risk—Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.

AMG Distributors, Inc., a member of FINRA/SIPC.

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