S&P 500 Drops -10.1% from High

The S&P 500 experienced a correction, defined as a decline of -10% or more from all-time highs, during the 22 calendar days from February 19th to March 13th. Market pundits are pointing to concerns about tariffs and a possibly weakening economy, among other things, as reasons for the market decline. That said, it’s my opinion that it’s impossible to get inside the minds of every investor and know what’s driving their decisions. Emotions ebb and flow for a myriad of reasons in turn causing stock prices to ebb and flow.

As you can see from the below table, this is the first correction for the S&P 500 since 2022. Corrections are relatively uncommon events but, of course, not unheard of with now 7 of them since the launch of Super-Diversification in early 2010.

Of note about this current correction is the pace at which it happened…only 22 days. It was a fast move but not entirely out of the ordinary. You can see from the above table that the first correction in 2018, with a nearly identical loss as the current correction, took place in just 13 days.

Furthermore, the Covid market decline in 2020 was 33 days but fell 3 TIMES further (down -33.9%). There is a saying that stocks tend to go up like and escalator and down like an elevator! We’ve seen that elevator down move, a quick one, with this correction.

For a bit more added perspective, although the S&P 500 is off -10.1% from its February high, the year-to-date loss is meaningfully less. The markets rallied from the start of the year to the February 19th high possibly explained by some unrealistic optimism that has since faded. Regardless, if we focus on the year-to-date performance the market’s decline is relatively negligible at -6.1%.

Minimally Heightened Market Volatility

I’m convinced that volatility always feels more elevated when you live through it day-by-day! This seems especially true when there may be other things in our world causing us concern, whether it’s news headlines or anything else, and then we see the markets jump up and down. This, at least, seems to be the case for me.

Although I’m feeling like the market recently has been significantly more volatile than average, the numbers simply do not support it. The below graph shows the VIX, the leading measure of market volatility, back to 2010. The orange line of the graph is the average during this period.

Today, on the far right of the graph, the VIX is at 21.8 as compared to the average of 18.4. This is a bit elevated but is down from the recent highs of about a week ago when it hit 27.9. Most importantly I think this graph shows that, although today’s volatility is above average, that it is within what would generally be considered a normal range.

Super-Diversification Year-to-Date Performance

Super-Diversification has done just as we would hope for and expect which is to mitigate losses during market downturns. There is, of course, no guarantee but it has proven effective time and again and is doing so during this current correction as well.

As the graph below shows, Super-Diversification is down just -1.2% for the year. Of course we had made some money during January and early February and then gave it all back which does not necessarily feel good. But if we can ignore that brief rally and following decline, the year-to-date performance is neither noteworthy nor any concern.

Super-Diversification is a composite average of all Patton clients with a growth-oriented portfolio risk profile.

Our clients’ Super-Diversified Portfolios are made of a wide range of asset classes, often meaningfully more diversified than a traditional portfolio, which is what makes them Super-Diversified! As the graph below shows it is the added diversification that has helped our Super-Diversified Portfolios mitigate losses. For example, International Developed stocks, those in Europe and other developed markets, are up +8.7% for the year, gold is higher by +13.7%, and Warren Buffett’s Berkshire Hathaway has gained +11.2%.

Asset class performance source: U.S. Large-Cap: ETF SPY; U.S. Mid-Cap: ETF IWR; U.S. Small-Cap: ETF IWM; Intl Developed: ETF EFA; Intl Emerging: ETF VWO; Real Estate: ETF VNQ; Commodities: ETF PDBC; Gold: ETF IAU; Berkshire Hathaway: BRK.B; Bonds (mid-term govt): ETF IEF; Patton Flex Strategy: composite average of strategy performance.

Conclusion

Investing is not necessarily easy. The ups are pretty fun and easy to take but the downs can be tough. These periods of declines simply cannot be avoided to achieve strong long-term returns.

Super-Diversification is doing exactly what we want it to and expect during this current correction. Furthermore, not only does it tend to mitigate losses during downturns but, equally if not more important, it has also delivered strong long-term performance helped by the added diversification which I believe will continue.