A single-day market rout of this magnitude is undoubtedly unsettling, especially amid July’s sharp selloff in technology stocks, but traders are trying to maintain some perspective. Following Friday’s decline, the S&P 500 fell 5.7% from its all-time high, marking only the second time this year that it has fallen more than 5%. Bank of America found that such declines have typically occurred three times a year since 1929. So, this is still typical market behavior. Bank of America also found that over the past century, the stock market has experienced an average retracement of 10% per year. Therefore, if the S&P 500 followed the Nasdaq Composite into correction territory, this would also be normal market activity in any given year. By 2024, the S&P 500 is still up more than 12%. Piper Sandler said the S&P 500 loses an average of 7.5% in election years. The firm found that markets typically rebound after these pullbacks as election uncertainty is resolved and the year ends. However, we’re already above the typical annual return in an election year, which is just over 7%, according to Piper Sandler. “It’s always interesting to me because the market gets very overbought and we correct and people think it’s the end of the world, but actually, it’s exactly what you’d expect,” said Adam Turnquist, chief technical strategist at LPL. “In a bull market, corrections are completely normal. So when you look away from some of the headlines, there’s always fear, and just looking at the history, the bottom line is, we’re still in a bull market.” It’s a unique one cycle, stocks rise during periods when the Federal Reserve raises interest rates. In the past, stock market returns have been greatest during easing cycles, not tightening cycles. Therefore, this market has the potential to make new history and continue to fall. But most investors on Friday were not too worried about that happening. —CNBC’s Pia Singh contributed to this report.
