PRACTICAL PORTFOLIO: Lean Into the Market's Patterns

Whatever stocks are doing, chances are we've been here before. Familiarity can help you stay the course.

- MICHAEL DECKER AND NELLIE S. HUANG

EVERY STOCK MARKET MOVE FEELS momentous and unique. In reality, stock market oscillations regularly run through a gamut of basic configurations, including bull markets, bear markets, dips, corrections and flat cycles. Investors who understand these patterns-particularly the declining ones, when fear takes over-can set reasonable expectations and hopefully make better investment decisions.

To that end, we've put together a brief review of basic stock market patterns on the downside, including how often they tend to occur and how long they typically last. "Forewarned is forearmed," says Sam Stovall, chief investment strategist at CFRA Research. Stovall keeps meticulous records on stock market moves, and we cite his definitions below, unless otherwise noted. "Being aware of market history can help calm nerves," he adds. Think of you and a friend driving along in your all-terrain vehicle on a smoothly paved road, he says. "If you warn your passenger that you're about to hit a bumpy, unpaved road, they'll go Whee! But if you don't warn them, they'll go Whoa!" Keep in mind that over the long haul, the stock market generally rises.

Although the S&P 500 index always suffers some "negative return experience" in any given year-sizable ones, sometimes "they tend not to persist," says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. Since the start of 1990, despite huge drawdowns in many years, including 2008, 2020 and 2022, the S&P 500 delivered positive returns in 23 out of 32 calendar years. And over the entire 32-year period, the index has returned 9.9% annualized. It serves as a good reminder that it pays to stick with your investment strategy, even through difficult markets. Here's what you're likely to experience along the way.

ANNUAL DIPS