Topic: Market Movement

Understanding the significance of the 10-year Treasury is crucial for investors. Treasury Secretary Scott Bessent has repeatedly emphasized that the yield on the 10-year Treasury is a key focus of the administration, particularly in relation to its tariff policy.

Backed by the full faith and credit of the U.S. government, Treasury securities are a popular investment because of their reputation for being one of the safest investments available. There are three types of Treasury securities: bonds, notes and bills, each with different maturity dates and interest rates.

• Treasury bills are short-term government bonds typically sold in durations of 4, 8, 13, 17, 26 or 52 weeks.
• Treasury notes have maturities ranging from 2 to 10 years, with interest paid every six months. Because their interest is exempt from state and local taxes, they are a popular option for investors seeking to reduce tax liability.
• Treasury bonds are long-term securities with maturities greater than 10 years, most commonly for 30 years. Interest is paid every six months.

A yield curve such as the one shown below plots interest rates of bonds with equal credit quality but different maturity dates. There are three main shapes of a yield curve: normal (upward sloping), inverted (downward sloping) and flat. A normal, upward sloping yield curve is indicative of economic expansion, while an inverted curve points to economic recession.

The yield curve today is U-shaped. While short-term rates are high, they dip in the 1– to 2-year maturity range, and then increase again, ultimately creating an upward slope into maturity perpetuity. This relatively rare shape is an unusual bond market phenomenon, occurring only about 3% of the time in the past 50 years. Suggesting a complex market outlook, a U-shaped yield curve indicates a combination of near-term strength and longer-term uncertainty, demonstrated by the dip in intermediate term rates.

The left side of the chart below represents higher rates on short-term debt, such as Treasury bills. Moving along the yield curve towards longer maturities, interest rates drop, creating the bottom of the U-shape. Finally, rates rise again for long-term bonds, forming the right side of the U.

U.S. Treasury Yield Curve

What is the 10-year Treasury, and why is it so important?

A common misconception is that when the Federal Reserve raises the federal funds rate, all interest rates rise in tandem. This usually is not the case. Short-term rates are tied to the federal funds rate, while longer-term rates (such as the 10-year Treasury yield) are more influenced by the market’s outlook on growth and inflation.

The Treasury yield curve usually slopes upward, meaning longer-term securities yield more than short-term ones. This reflects the fact that investors typically demand higher yields in return for locking their money up for longer periods.

Recognized as a benchmark for the global financial system, the 10-year Treasury sheds considerable light on the current economic landscape and global market outlook. It is a bond that pays interest and returns the principal after 10 years, while its yield is the amount that the U.S. government pays to borrow money for a decade. Similarly, the yield also is the current rate that Treasury notes would pay investors if they bought them today.

Declines in the 10-year Treasury yield generally indicate caution about global economic conditions, whereas gains signal greater economic confidence.

The 10-year Treasury also plays a role in determining the value of companies. As the 10-year moves higher, those cash flows are discounted at a larger rate — and therefore, the market value of companies is lesser in comparison.

Two primary factors affect the 10-year Treasury yield: inflation and investor perception of the economy. When the 10-year yield goes up, so do mortgage rates and other borrowing rates. Conversely, when the 10-year yield declines and mortgage rates fall, the housing market strengthens, which has a positive impact on the economy.

Higher 10-year bond yields have pushed the 30-year mortgage rates to 8% for the first time since 2000. Higher mortgage rates have hurt existing home sales, but limited housing supply haskept home prices from falling too much.

The 10-year also impacts the rate at which companies can borrow money. When the 10-year is high, as it is today, companies face more expensive borrowing costs that may reduce their ability to grow and innovate. Small businesses haven’t changed their capital spending plans yet, but obtaining financing has become more difficult, nevertheless. If businesses don’t have access to capital, that could mean less investment in the future — and fewer jobs.

The stock market also is not immune to changes in the 10-year. Rising yields may signal that investors are looking for higher return on investments, but the fear of rising rates could draw monies away from the stock market. Falling yields usually mean that borrowing rates will decline, making it easier for companies to borrow money and expand.

Lastly, global events have an impact on Treasury yields. U.S. government bonds are considered the safest investment in the world, and when there is upheaval, Treasuries are in high demand from international investors, leading to lower yields.

Why has the 10-year gone up?

The 10-year Treasury had some wild swings in the first half of the year. It bottomed out at 3.87% on April 4, surged to 4.59% a week later and eventually settled around 4.4%. Among the key factors influencing the unusual move in rates:

• Tariff announcements and retaliation are fueling concerns about higher near-term inflation.
• Investors are demanding greater compensation for owning longer-dated Treasuries with the rising debt levels and the domestic policy bill that could add trillions to the deficit.
• Foreign demand for U.S. Treasuries has softened following Moody’s downgrade of U.S. credit as well as the concern about the rising deficit.

It is likely that the Fed will slowly bring down short-term rates over the next few years. While the market expects the Fed to cut rates one or two times in the second half of this year, the Fed maintains that it will be data-dependent when it is time to reduce interest rates, remaining an independent institution not swayed by political pressure.

As we write often, it is hard to time the top or bottom of the stock or bond markets. We often don’t know that yields have peaked until long after it happens, and as we witnessed in April, we can see volatile moves in both stocks and bonds in a short period of time.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Kiplinger, Investopedia, JP Morgan, Vanguard, Treasury.gov

On Wednesday, the Dow closed down 1.9%, and the S&P fell more than 1.6%. That kind of headline catches people’s attention — and because so many people hear that number and wonder, “What’s going on?” we thought it would be helpful to share a brief explanation.

Why Did the Market Sell Off?

This was a technical sell-off — a sharp drop in stock prices driven by market mechanics, not news or economic events. In this case, the decline was driven largely by the bond market, not by any shift in the economy or corporate fundamentals. Among the factors:

• Budget bill: Concerns about a new budget bill have investors worried about a worsening of the U.S. deficit. If the bill were to pass, the debt level and inflation could rise.

• Moody’s downgrade: Over the weekend, Moody’s downgraded U.S. government debt from Aaa to Aa1 because of concerns over the growing national debt and a lack of meaningful fiscal reform. In turn, this means more spending on interest costs incurred from the national debt. Moody’s is now the third of the three major rating agencies to cut the U.S. credit rating from the top tier. The first downgrade happened in 2011, and the second came in August 2023, based on “erosion of governance” and repeated standoffs over the federal debt limit.

• Rising Treasury yields: Wednesday’s Treasury auction (20-year bonds) was weak, forcing yields higher — over 5% on 20- and 30-year bonds, and around 4.6% on the 10-year. As a reminder, the 10-year Treasury is used as a benchmark to other interest rates, such as mortgages and corporate bond yields.

• Investor reaction: Higher yields mean fixed income temporarily looks more attractive than stocks to some investors, which triggered selling in equities Wednesday.

Why Are We Sharing This Update?

We are not concerned by this drop, and we are not asking our clients to do anything. This is not a strategy shift; it’s simply an update to explain what you may be hearing in the news.

We believe moments like this should be understood, not feared. When the market falls more than 1.5% in a single day, people notice. And we’d rather our clients hear directly from us what’s driving it.

What Does This News Mean?

Treasury yields spiked due to short-term technical factors and reaction to the downgrade. The market is coming off a big run-up following the April sell-off.

At some point, the market may become oversold, and it will then find balance again — just as it has many times before. That’s how markets work.

• This does not mean the market is broken.
• This does not mean you need to take action.
• This does not change anything about our long-term approach. 

What’s Next? Stay the Course.

For long-term investors, this moment — like all the others before it — is just that: a moment. We don’t build portfolios based on headlines. We don’t invest with a day-to-day mindset. And we don’t change course just because markets have a down day.

Wednesday’s dip will be another historical data point. Nothing more.

If anything, this type of market behavior often creates long-term opportunity, not long-term risk.

As always, if you’d like to discuss the market’s moves further, we’re here for you. But most importantly: We are focused on the big picture, and we want you to be, too.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter.  In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.  

Sources: Bloomberg, CNBC

After months of uncertainty, the U.S. and China on Monday announced a major trade agreement, temporarily easing tensions between the world’s two largest economies. Under the 90-day deal, U.S. tariffs on Chinese goods will drop from 145% to 30%, and China will reduce tariffs on U.S. goods from 125% to 10%.

Though it is a short-term deal, this shift marks the first major de-escalation since the tariff hikes earlier this year. 

Markets responded immediately, reminding us why staying invested is the best strategy:
• The Dow Jones Industrial Average rose 1,044 points (2.5%).
• The S&P 500 gained 2.9%.
• The Nasdaq Composite jumped 4%.

These gains come after a sharp correction earlier in the year. From mid-February through April 8:
• The Dow declined 16.1%.
• The S&P 500 fell by 18%.
• The Nasdaq Composite dropped nearly 24%.

Since bottoming on April 8, we’ve seen a powerful rally:
• The Dow has recovered more than 12.5%.
• The S&P 500 has climbed by more than 17%.
• The Nasdaq Composite is up over 22%.

While volatility is uncomfortable, history shows that the market has a way of working through disruptions. Investors who remained steady through the selloff have been rewarded with a sharp rebound.

What we do know is this: Since 1926, the S&P 500 has ended the year in positive territory approximately 74% of the time. That means markets have been up nearly three out of every four years. That’s not theory — that’s nearly a century of fact, and long-term data remains our North Star.

S&P 500 Historical Annual Returns

While we remain optimistic about the rebound, we’re not assuming smooth sailing ahead. We’re not fortune tellers — we’re stewards. We didn’t panic when the market sold off. We stayed disciplined. And now, we’ll continue to be vigilant.

Our focus is on the long-term compounding of capital, not reacting to every headline or tick. We will monitor the landscape closely, manage portfolios actively, and make thoughtful, incremental adjustments where necessary.

We are not in the business of timing markets. We are in the business of helping you navigate them — with patience, clarity, and conviction.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Source: Macrotrends

Market uncertainty has become the new normal. As we wrote last week, the stock market has been extremely volatile. During the first three days of last week alone, the S&P 500 experienced nine intraday moves of 1% or more. The stock market is reacting to every policy announcement — positive or negative — from the White House.

These aren’t policy changes, but clarifications about what policies may be or their potential implications.

Stocks aren’t the only asset class experiencing higher volatility and downward pressure. The U.S. dollar has been hit hard, falling almost 5% in April and 7.3% from its peak in mid-January. This marks the worst start for the U.S. dollar index since 1990. 

Large drawdowns are common for the U.S. dollar, but the speed of the decline is unusual. We saw a similar moves during the first year of President Trump’s first term and during the pandemic, but those drawdowns occurred over a much longer period.

The ICE U.S. Dollar Index

Why has the dollar been losing value?

Wall Street originally anticipated that tariffs would boost the dollar. Traditionally, the dollar strengthens as tariffs sink demand for foreign products. Currency values rise and fall often in response to inflation concerns and central bank moves.

Over the last few decades, the dollar’s strength has helped keep borrowing costs down and has bolstered the U.S.’s position as the world’s leading economy and a major power player. With much of the world’s goods exchanged in dollars, demand for the currency has stayed strong, even as the deficit has ballooned.

This year, however, the dollar has weakened. The drop has raised concerns because it coincided with a spike in interest rates, which is an unusual event. Typically, when bond yields are higher than those in other countries, the dollar rises. During times of volatility, Treasury yields tend to fall, as U.S. Treasuries have been perceived as the “safe haven” investment amid market uncertainty.

However, this pattern did not occur in April. Investors instead have exited dollar-based assets, reacting to widespread tariffs and the belief that they could slow U.S. growth and potentially lead to a recession. As risk aversion rose globally, the U.S. appeared to be the source of risk, and investors sold dollar-denominated assets, further weakening the dollar.

A weaker dollar could limit how much U.S. interest rates fall. Foreign investors may not be as willing to buy U.S. Treasuries as they have been in the past, limiting the decline in yields.

While a weaker dollar threatens to increase the cost of tariffs for U.S. consumers and businesses, it also can stimulate the economy by making U.S. goods and services less expensive for the rest of the world. If the economic outlook stabilizes, one could expect the dollar to gain value and offset some of the tariff-related price increases.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Bloomberg, Carson, CNBC, Horizon, Investopedia, Schwab

Another week, another roller-coaster ride in the stock market. Volatility has stayed high since “Liberation Day” and the announcement of tariffs on multiple countries. The chart below shows the volatility index for the last month; it does not look that different from the pandemic, when we saw big market swings daily.

Big Swings

Volatility because of tariffs nearly matches what it was during the financial crisis and the COVID-induced recession.

The most recent culprit of market weakness was President Trump’s push against Federal Reserve Chairman Jerome Powell. Trump has repeatedly criticized Powell for not cutting interest rates fast enough and has made overtures about possibly firing him. On Tuesday, Trump said he had no intention to fire Powell, and the market responded positively Wednesday. 

The Fed’s independence — specifically the ability to carry out its duties without interference from elected officials — is foundational to achieving economic stability. It is unlikely that the Fed will come to the market’s rescue (like it did in 2018 and 2020) because of worries that tariffs will be inflationary.

Understanding Market Volatility

Volatility reflects the amount of risk related to fluctuations in a security’s value. A highly volatile security can see its price change dramatically in either direction in a short period of time. A security with low volatility will tend to hold its value over time and not move much.

The Volatility Index

One of the preferred measures to gauge market volatility is the Volatility Index (VIX), a measure of forward-looking volatility for the next 30 days. Also known as the fear gauge, the VIX reflects the market’s short-term outlook for stock price volatility, as derived from option prices on the S&P 500. This index is not something that can be purchased like a stock or bond.

The higher the VIX, the more volatility in the market and the larger the market swings. The VIX is a good indicator of fear in the market. Less than a month ago, the VIX was trading at less than 20; the long-term average of the CBOE Volatility Index is around 19.5. After April 2, however, the VIX index surged to over 50, a level not seen since the height of the pandemic.

For reference, here is how the VIX often translates:

• 0-15: A certain amount of optimism in the market, as well as low volatility
• 15-25: More volatility in the market, but nothing too extreme
• 25-30: More market turbulence, and volatility is increasing looking forward
• 30+: The market is highly volatile and extreme market swings are likely to occur

Instead of thinking about timing the market or selling out of equities, we want our clients to do the following:

1. Revisit your investment objectives and your financial plan. Longer-term objectives are made possible when taking an appropriate level of risk.

2. Maintain a longer-term mindset. Do not let market volatility or your emotions convince you to abandon your prudently designed, long-term investment plan. Short-term, reactive decisions can derail your plan.

3. Continue to contribute. Maintain your savings of cash according to your periodic investment plans, such as your 401K or dollar-cost averaging into your portfolio.

Volatile times in the market also present opportunities, such as tax-loss harvesting, dollar-cost averaging, increasing contributions to take advantage of lower prices, and potential Roth IRA conversions. The stock market seems to be one of the few markets where investors don’t want to buy at sale prices and would rather pay full price.

Resist the urge to time the market and look for a good sale!

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, JP Morgan, Schwab

Last week was a memorable one in the equity markets. The S&P 500 fell more than 10% for the first two days of the week — one of the worst two-day declines ever — only to be followed by a gain of more than 9.5% in one day, the third-best day since World War II.

Going back to 1945, the S&P has gained more than 5% in one day 25 times. As the table shows, more of those occurrences happened during a bear market (14) than in a bull market (10). Some of the largest daily gains in stocks came almost immediately after bear market lows and/or major corrections. This serves as a great reminder that when things feel bad in the stock market, a big day can happen quickly, so it is critical to stay invested.

Last week, the S&P 500 was very close to entering into a new bear market (more than a 20% drop from recent highs). Intraday, the S&P 500 did fall more than 20%, but by the close, it was down only 18.9% from the high. Both the NASDAQ and the Russell 2000 (small cap stock index) had fallen into bear market territory.

We have seen two bear markets in the S&P in the last five years — in 2020 and 2022 — and two close calls — one in 2018 and one this year. Only one of the last four big market declines led to a recession, and that was due to a global pandemic.

Here’s the important thing to keep in mind: The market goes down about a third of the time, and stocks always have gotten past the down markets. We don’t think that this time is any different.

Corrections and Bear Markets Since WWII

Man-made supply shocks caused by policy decisions (i.e., tariffs) are dominating the current environment. Here are some important takeaways to keep in mind during this period of volatility and uncertainty:

1. The stock market does not appear to like tariffs.

Tariffs are taxes that importers pay. These taxes either hit the company’s bottom line or they will be passed on in higher costs to the supplier and consumer. Businesses must adapt to tariffs — and the policy is changing on a seemingly daily basis. The market is concerned that the effective tariff rate could erase most of the economic and double-digit S&P earnings growth that was expected this year — as well as GDP growth.

2. Global investors are reducing their exposure to U.S. assets.  

Fixed-income markets have been hit along with the U.S. stock market. Bond yields initially sank after the tariff announcement on April 2 and subsequently rose after higher tariff levels on some countries, such as China. The Federal Reserve continues to signal that it will keep its policy rate steady. 

The trade war puts the Fed in a tight spot; a prolonged trade war could drive the economy into a recession, but inflation is holding higher than 2%. Treasury rates have surged to their highest level in over a month, while one of the main goals of additional tariffs is to reduce the long-term rates. It is more than likely that the rise in rates is due to hedge funds and institutions selling stocks and bonds to raise cash in the face of high market volatility.

3. Market volatility can affect policy decisions.

Both the stock and bond markets reached a fever pitch last week. Excess volatility in fixed-income and currency markets drove a policy pivot and led to a 90-day pause for most tariffs. Tariffs are not laws; the International Emergency Economic Powers Act gives the president the authority to levy them. There is some discussion that the Supreme Court will need to get involved, but legal clarity takes time, and potential further market volatility is expected. The latest tariffs may not persist at current levels. The good news is that tariffs can be removed with the stroke of a pen.

4. Volatility can create opportunities. 

With stocks down and yields up, investors with excess cash can take advantage of both stocks and bonds. This could be an opportunity to convert a Roth IRA if the value of the Roth is down significantly from recent highs. As we previously discussed, missing the big gain last week is the equivalent of missing nearly a year and a half of market returns. Trying to time this (or any) market is very difficult. The S&P has never failed to make new all-time highs after selloffs or bear markets.

In the coming weeks and months, we are likely to see continued market volatility as the stock and bond markets digest the impact of ever-changing policy initiatives. Remember, long-term investment goals require long-term perspective, especially during times of heightened market volatility. 

We fully understand it is hard to watch portfolio values fluctuate with the ups and downs of the market, but sticking with the long-term strategy will pay off over time. As always, we will be keeping a very close eye — and we will keep you apprised.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, JP Morgan, Schwab

For now, the S&P 500 has narrowly avoided entering a bear market, defined as a sustainable period of declining stock values, with a drop of 20% or more from recent market highs.

Trade policy is shifting rapidly, often changing daily. With recent tariff announcements, the stock market has been experiencing large levels of uncertainty.

Every period of market volatility feels different. We hear that a lot from clients: It feels different this time.

This is a very normal response to market uncertainty. As the chart below shows, though, stocks have moved higher and higher over the last 120-plus years, even with plenty of bad news. Each time, it felt different.

Stocks Tend To Go Higher Over Time — Even With Bad News

Dow Jones with major geopolitical events since 1900

What’s the Proper Course of Action?

History shows that selling in periods of extreme market volatility and bearishness has been a mistake. We don’t know what the rest of the year will bring, but smart investing can overcome the power of emotion.

Below are some solid investment principles that can help investors help fight the emotional urges in volatile and uncertain times.

1. Time in the market is what matters.

Every week, we write that timing the market is impossible and can lead to costly mistakes. Avoiding the market’s downs may mean missing out on the ups as well.

This week has been a perfect example. Stocks skyrocketed on Wednesday, with the S&P 500 rising almost 10% while the NASDAQ rose more than 12% in one day. On a percentage basis, this was the best day for the S&P since 2008 and for the NASDAQ since 2001. The vast majority (78 percent) of the stock market’s best days have occurred during a bear market or during the first two months of a bull market.

If you missed these days, your returns would be cut in half. If you missed the best 30 days, your return would be about 83% lower. These outcomes would create a very different long-term scenario.

2. Market declines are part of investing.

Over long periods of time, stocks move higher — but market declines are inevitable.

Downturns Happen Frequently But Don’t Last Forever

3. Stick to the plan.

We have created thoughtful and well-constructed plans for our clients that take into account the market’s ups and downs, risk tolerance and long and short-term goals.

4. Buy more on dips.

This is known as dollar-cost averaging — systematically investing at regular intervals, regardless of the price. If you have excess cash, now is the time to maintain your strategy, not to change it. (This does not ensure a profit, nor protect against a loss.)

5. Diversification matters.

Spreading investments across a variety of asset classes can help buffer the effects of volatility in the portfolio. This includes equities and fixed income. Bonds can help soften the impact of market losses on the overall portfolio.

6. The market rewards long-term investors.

It is always important to maintain a long-term perspective, especially when markets are volatile and declining. Including market downturns, the S&P average annual return over all 10-year periods from 1939 to 2024 was 10.94%.

S&P 500 Rolling 10-Year Average Annual Total Returns

It’s natural for emotions to arise during periods of volatility. Those who can tune out the noise and focus on long-term goals are better positioned for a better financial future.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: KIM, Carson, Hartford, Fidelity

Twenty-five years ago, the dot-com bubble burst, and the NASDAQ reached its peak. Today, we hear the question often in the news: Did AI stocks hit the wall in the first quarter?

Heading into the year, the Magnificent Seven stocks — Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla — led the market after carrying much of the heavy lifting over the past two years. Extended valuations in those stocks made them vulnerable to bad news, and they were down about 16% in the first quarter, trailing the broader S&P 500 index. In turn, valuations for NASDAQ stocks have fallen back to levels last seen in early 2023.

Tech and Tech-Adjacent Under Pressure

Investors saw that market diversification was the winner for the first quarter, something we haven’t seen in over three years. In 2022, cash was the only asset class that wasn’t negative, with both stocks and bonds falling more than 15%.

While the average 60/40 portfolio (60% stocks, 40% bonds) was negative for the first quarter, it was down much less than the overall market, thanks to diversification. International stocks, as measured by the MSCI ex-US, were up more than 6% — compared to the S&P 500 being down about 5%. (This was an outperformance by almost 11% for international stocks.)

At the same time, bonds (or fixed income) were positive at almost 3%. The leading sectors in the S&P 500 were healthcare, energy and utilities — not technology.

Tariffs are not new, but what is different today is their scale. President Trump is targeting more countries, more aggressively, than he did in his first term.

The U.S. announced permanent 25% tariffs on imported cars and certain auto parts. It is important to remember, however, that this policy can shift rapidly, making the idea of timing the market based on tariff news extremely difficult. Global investors should have some clarity this week, after “Liberation Day” tariff announcements on Wednesday.

The five main goals for Trump’s tariffs are curbing the flow of illegal immigration into the U.S., reducing the flow of fentanyl, leveling the playing field with trading partners, boosting government revenue and boosting domestic manufacturing. Trade policy is evolving, with an emphasis on renegotiated deals to strengthen the supply chain and support American industry.

For decades, the U.S. focused on free trade with its political allies and on allowing consumers access to cheaper goods. This has led to a widening trade deficit, less control over supply chains and declining manufacturing at home.

Today the top U.S. exports are energy and autos, while the top imports are autos, auto parts, energy, and electronics. The countries we import from the most to are also the ones that we export to the most, with the notable exception of China, as seen in the chart below.

Imports and Exports by Largest U.S. Trading Partners

Why does this matter?

After decades of prioritizing free trade, U.S. policymakers are focused on strengthening domestic industries and reducing reliance on imports. Tariffs and reworked trade deals are focused on bringing benefits back to the U.S. This is not something that will play out overnight; these moves will take years to implement.

The pandemic highlighted supply-chain disruptions and the vulnerabilities of relying on imports and products that are manufactured overseas. While many corporations have already been shifting manufacturing away from China and other foreign countries, it takes time and money to bring this back home.

This will come at a price for consumers and corporations. Time will tell how this plays out, and we are more than likely to face many more changes to economic policy.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: KIM, Capital Group, Schwab

Stocks slipped into correction mode last week, with the S&P 500 falling more than 10% from its peak in mid-February. It took only 16 trading sessions for the S&P to sink 10%, marking the seventh-fastest correction since 1929. Three of the fastest seven drawdowns have happened under President Trump: 2018, 2020 and now.

Some important things to know about corrections:

• The S&P has averaged 1.1 corrections per year since 1928.
• Corrections happen for a reason, and stocks have always fully recovered.
• Emotions run high during corrections, and many investors are prone to making costly investment mistakes out of fear that the correction will worsen and stocks won’t bounce back.
• The best defense against corrections is to remember that they are normal, even in good stock markets.

S&P 500 Enters Correction Territory

The gauge fell 1.4% Thursday, bringing its three-week rout past 10%

Corrections feel different every time, and they never feel normal – but they are. We are in a trade war with uncertainty all around us, and markets do not like uncertainty.

Investors tend to rationalize in a negative context, thinking that the current situation is different from previous corrections. It’s natural to fear the worst. The chart below is a great reminder that throughout history, the U.S. economy and stock market have faced many obstacles and still have gone on to thrive.

Since 1980, the S&P 500 has dropped 5% or more in nearly every year (93% of the time) and 10% or more in almost half of the years (47%). The current correction is the 24th in 46 years, meaning a 10% drop happens more often than not.

Despite that, most years still end positively. Only nine out of those 46 years ended with losses. In 16 of the 24 correction years, the market avoided a bear market (a 20% drop) and still delivered an average return of 9.5%, which matches the long-term average since 1950. Since World War II, there have been 48 corrections, but only 12 turned into bear markets — a relatively low number.

Putting 2025 in Perspective

S&P 500 Index max pullback per calendar year

The chart below reminds us that what matters most is time in the market — and not time out of the market. The best and worst days of the year often are close to each other, so if you sell on the bigger down days, you will be more likely to miss the bigger up days to help you recover. We saw this last week; Monday was the worst day of the year, and Friday was the best day of the year.

In 2024, the S&P was up more than 23% on the year. If you missed the best 10 days, your return was less than 4%! (The same was true for 2023.) Since 2000, the average return for the S&P has been 9.5%, but if you were to miss the best 10 days, the return would be -12.5%!

Missing the Best 10 Days of the Year Can Crush Returns

S&P 500 yearly returns (2000-2024)

We know that this correction and recent market volatility don’t feel good. Understanding the market’s history is important when you are making decisions about how to achieve your long-term investing goals.

While we don’t know how long the market pullback may last — whether it is short-lived or the start of a longer market drawdown — history shows that the stock market recovers, and diversified investment portfolios help withstand volatility and tough market times.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Bloomberg, Carson, CNBC, Fidelity