Many parents can appreciate the all-too-familiar question “Are we there yet?” We can all picture the children packed in the back seat of the family minivan, anxious to arrive at their destination. Parents, despite their best efforts to placate children with promises of sweets and presents, often fail to stop the barrage of questions. Perhaps this vignette illustrates attitudes of modern day investors. “Are we there yet?” is similar to the way in which some investors question when the markets will return to “normal.” This phrase can describe the sentiment of investors looking for a reason to change their goal, measure their success, or just simply time the markets. This Market Brief doesn’t exactly answer the question, but instead seeks to reframe it more constructively.


When the stock market declines 15% to 20% over a short period of time, worried investors may lament “When will things get back to normal?” just as the child asks “Are we there yet?” Very concerned investors might even sell stocks if they can’t stomach this risk. Historical average annualized U.S. equity market returns are between 10% to 12%. The typical range of returns around this average is about 15% on either side as measured by the variance of annual returns. With return expectations of between 10% to 12% in line with historical data, a typical investor might not worry when markets are down 10%, but become very worried when the decline approaches 20%.

Investors might acknowledge that losses of 15% to 20% are possible, but it’s different when they actually see it on monthly statements. To us, this thought exercise might help contextualize investors’ yearning for markets to get “back to normal.” The top left chart on page three shows the path of the S&P 500 since January 1, 2018. The pullback in late January and early February was so short lived that some investors may not have had time to react. In fact, their absence of worry was rewarded by new all-time highs achieved from August through October. However, as the drawdown from the October highs through year end approached 20%, investor reaction was meaningfully negative as measured by data including net equity fund outflows. Though the rally off the December lows has cut the loss in half, investor sentiment may remain poor until stocks recover and then surpass the October all-time highs.

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