Understanding Market Pullbacks and How to Stay on Track
The stock market has hit a rough patch recently, causing some investors to feel uneasy. But before you panic, it’s important to put this downturn into perspective. Wes Johnson of ACT Advisors, a fee-only fiduciary wealth management firm with offices in Mount Pleasant, SC, and Asheville, NC, explains why this market pullback is not only expected—but completely normal.
How Much Has the Market Dropped?
As of Tuesday’s close, the S&P 500 is down 9.3% from its all-time high, which occurred just three weeks ago on February 19. While a drop of nearly 10% may seem concerning, it’s actually well within historical norms.
The Average Market Pullback:
- On average, the stock market experiences a 14% drawdown per year.
- In 80% of all years, we see at least a 10% correction at some point. So while this decline may feel unsettling, it is not unusual—especially when compared to historical data.
Why This Was Expected
The past year has been an outlier in terms of market performance. In 2024, the S&P 500 returned approximately 25%, and the market never experienced a full 10% correction. The only notable dip was an 8.5% decline in August, which was short-lived.
Given that markets typically follow a pattern of ups and downs, it was reasonable to expect some form of pullback this year.
What About a Recession?
At ACT Advisors, we continuously monitor economic indicators to assess whether a downturn could lead to a recession. Right now, none of our research partners suggest that a recession is imminent.
One research firm adjusted its GDP growth forecast from 2% to 1.5%—but even with this reduction, the economy is still expanding.
A slowdown is not the same as a recession—and right now, there’s no clear sign that the economy is headed toward one.
How Bonds Are Helping Stabilize Portfolios
One piece of good news is that the bond market is doing its job. Historically, bonds tend to rise when stocks decline, creating a cushion for investors.
Over the last two to three years, both stocks and bonds fell simultaneously, which is unusual. Now, bonds are once again acting as a stabilizer, helping to balance out portfolio losses from stocks.
This means that if you have a well-diversified portfolio with both stocks and bonds, you likely have assets in your account that are gaining value, even during this downturn.
How This Market Drop Affects You
For Investors Still Contributing to Retirement Accounts (401(k), IRAs, etc.)
- Market declines create buying opportunities—you’re investing at lower prices, which can lead to greater returns over the long term.
- Think of this as a discount on stocks rather than a loss.
For Retirees Drawing from Their Portfolio
- This downturn does not mean you need to cancel travel plans or adjust spending.
- ACT Advisors carefully selects where to pull your retirement income from, prioritizing assets that have held value, such as bonds.
- Instead of selling stocks at a loss, we sell from bond holdings to preserve your equity investments for when the market recovers.
Final Thoughts: Stay the Course
- Market pullbacks are a normal part of investing—on average, markets experience at least one 10% drop per year.
- The bond side of your portfolio is working as intended, offsetting stock losses.
- If you’re still investing, you’re buying stocks at a discount—a great long-term move.
- If you’re retired, we’re managing your withdrawals strategically, so your income remains steady.
Based in Mount Pleasant, South Carolina, Wes Johnson, CFP® is co-founder of fee-only fiduciary firm ACT Advisors, alongside Doug English, CFP®. Wes brings a wealth of experience in managing investment portfolios and guiding clients through the complexities of financial planning. ACT Advisors specializes in providing personalized strategic financial planning services tailored to the unique needs of each client. Known for their innovative strategies and client-first approach, ACT Advisors is dedicated to helping clients achieve their long-term financial goals.