Keeping Fears In Perspective

While many investors remain fearful of another stock market collapse, history indicates that their fears are likely overblown, according to Strategas Research Partners. 

Strategas’ research found that the S&P 500 has lost more than 20% in a calendar year only six times since 1926 — just 7% of the time, USA Today reports. On the other hand, 20%+ gains have occurred in 32 years; in 17 other years, the market gained between 10% and 20%.

The takeaway, according to USA Today’s Adam Shell: “It looks like many investors, fearing the worst, have been ignoring the fact that the stock market goes up two-thirds of the time. And, as a result, worrying about worst-case scenarios, such as a second financial crisis, a breakdown of the global financial system, a bank run in Europe, a looming stock market correction, or the U.S. economy suffering a major relapse, might have caused more harm than good.”

Having two major bear markets within a seven-year span has done a number on investors’ psyches, says Nicholas Sargen, chief investment officer at Fort Washington Advisors. “The back-to-back 50% declines shook people up because it was so unprecedented,” he said. “But if you ask me what is the likelihood of having three mega-downturns occurring within a decade and a half, I would say it’s a low-probability event.” Still, he said he “can’t entirely rule out Financial Crisis Round Two,” given Europe’s woes, other geopolitical risks and central bank monetary policy.