US Equities: Perspectives on Recent Volatility

It’s been a rough start to the year for US equity investors. Yet the volatility hasn’t been too far out of the ordinary in historical context.

The S&P 500 fell by 3.3% through March 21, trailing European and emerging-market stocks. Volatility has been driven by uncertainty over the impact of President Trump’s policies on the economy and companies, along with concerns about how new AI developments could affect technology giants.

Don’t Succumb to Short-Tempered Markets

Swift market declines are always painful. But a long-term perspective can be reassuring.

Over the last 20 years, big market declines have been commonplace. During that time, the S&P 500 fell by more than 1.0% on about 29 trading days (Display) on average. Yet after the dust settled, US stocks posted annual gains in 17 of those years, as shown in the green boxes.

Diagnosing the Dips

To be sure, the macro and market risks are real, and this quarter’s declines have been significant. We’ve seen the market fall by 1% or more on 11 days through March 21—more than average. But the market has only dropped by more than 2.5% once, versus an annual average of six days since 2005. In our view, it’s way too soon to diagnose the US market as suffering from a prolonged performance impairment.

Keep in mind that the S&P 500 experienced a peak-to-trough drawdown of 13% each year, on average. So far in 2025, the peak-to-trough drawdown is 10%. Our interpretation: intra-year volatility is a regular feature of equity markets. But over time, the market generally follows fundamentals, which to date remain solid despite the uncertainty.

Stay Invested as Markets Broaden

US stocks still offer attractive earnings potential, in our view. If the US policy path becomes clearer, we think markets could stabilize and broaden. This quarter, the Magnificent Seven mega-caps have underperformed, while the S&P 500 Equal Weight Index—representing a broader cross-section of US stocks—has outperformed the cap-weighted S&P 500. As we see it, these developments are creating good conditions for active equity portfolios to find stocks with quality business models that can surmount trade war challenges and deliver long-term results.

Investors should take some comfort from these observations. Reacting tactically to short-term volatility can be counterproductive since it’s notoriously hard to time markets. Staying in the market to capture the power of recoveries is vital to long-term success.