Telling the story of how the stock market usually goes up

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SPECIAL EDITION: Telling the story of how the stock market usually goes up, year 1 📈🎂 (tker.co)

One year ago on October 14, I launched TKer as the newsletter telling the story about how the stock market usually goes up.

So it would seem appropriate that the stock market would spend most of the past year getting smoked in what’s been one of the messiest selloffs in history.

From TKer’s launch, the S&P 500 climbed 9% to its January intraday high of 4,818. Then the market turned, with the S&P tumbling 27.5% to an intraday low of 3,491 on October 13.

Putting it all together, the S&P has fallen 17% during the existence of TKer.

While it may be the case that the stock market usually goes up, it doesn’t always go up.

This speaks to TKer Stock Market Truth No. 2: You can get smoked in the short-term.

Investing for long-term returns means being able to stomach a lot of intermediate volatility.

One of my favorite illustrations of this deal comes from JPMorgan Asset Management’s “Guide to the Markets.” The gray bars represent each calendar year’s return for the S&P 500, and the red dots represent intra-year drawdowns (i.e., declines from the index’s high).

While the S&P has usually generated positive annual returns, it’s also seen an average drawdown of 14% during those years. Some years had worse drawdowns than others.

When I wrote “10 truths about the stock market” a year ago, my intention wasn’t to help traders make predictions about where prices would head in the short term. I wrote it to provide a mental framework for investors to help process the ups and downs of the markets as they aim to achieve long-term financial goals.

Part of that is reminding investors during downturns that stocks have historically gone up when given time.

Similarly, it’s also about reminding investors during market highs that stocks have historically seen sharp selloffs during shorter time frames. From the January 3 newsletter to paid subscribers:

… 2021 was an unusually calm year for the stock market. Even as the S&P 500 surged 27% during the period, it experienced just one pullback greater than 5%. (The S&P fell by 5.2% from its September 2 high to its October 4 low.) This is not normal, and it’s something investors shouldn’t get used to.

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news.

To be clear, I was not attempting to make any kind of market-timing call. That piece was mostly about reminding folks that big sell-offs happen.

For the purposes of this piece, I’m not gonna go into why I think the market is lower. (You can read more about that here and here.1)

But I will say that the drivers of today’s market downturn are very different from history’s downturns. AND they’ll be very different from the downturns that happen in the future.

The bottom line is brutal market sell-offs happen. They’re happening now. And they’ll happen again and again even as the market trends higher in the long run.