Market Volatility Amid Tariffs and Oil Costs: A 60-year Perspective Reveals Future Trends
The S&P 500, a widely-followed stock market index, has demonstrated a pattern of significant short-term volatility but long-term growth over extended periods. This pattern becomes particularly evident during economic recessions, bear markets, and corrections.
During severe economic downturns, such as the Global Financial Crisis (GFC) of 2007-2009, the S&P 500 has experienced steep declines. For instance, the index fell about 57% from its peak in October 2007 to the trough in March 2009. It took over five years for the S&P 500 to recover to its previous peak level by March 2013. The period from 2000 to 2010 is often referred to as the "lost decade" for the S&P 500, marked by two major downturns: the collapse of the dot-com bubble and the GFC, resulting in negative returns over those ten years.
However, the market often undergoes corrections or shorter bear markets accompanied by sharp declines followed by recoveries. For example, in early 2025, the S&P 500 dropped 19% from its high in February to lows in April amid trade tensions but then rebounded strongly by 26% over three months, reaching new record highs. Historically, sharp rebounds like a 25% gain over a three-month span have occurred only a few times since 1957. In every noted instance, the S&P 500 continued to deliver double-digit gains over the following 12 months, highlighting the potential for strong recovery after corrections.
Despite significant downturns and extended periods of stagnation, the S&P 500’s long-term trend has been upward, driven by economic growth and corporate earnings. Even after severe bear markets, the index has not only recovered but gone on to reach new all-time highs over time. In recent years, the market has demonstrated resilience even amid geopolitical or economic uncertainties, with strong fundamentals supporting continued growth.
The historical data suggests that while the S&P 500 is subject to periods of steep volatility and downturns, it tends to recover and grow over time, making it a viable investment for long-term growth despite short-term risks. This resilience is evident in the S&P 500's ability to increase in value over every rolling 20-year period, meaning anyone who held an S&P 500 index fund for at least 20 years made money, regardless of when they made the initial purchase.
However, the near-term outlook for the stock market remains uncertain due to tariffs and geopolitical tensions. Economic growth forecasts have been downwardly revised following the tariffs, with the post-tariff consensus predicting a 1.4% increase in U.S. GDP in 2025, compared to the pre-tariff consensus of 2.1%. Despite this uncertainty, patient investors can buy and hold quality stocks with confidence, as the S&P 500 has always increased in value over every rolling 20-year period.
- In instances of economic recessions or bear markets, such as the Global Financial Crisis, the S&P 500 may experience steep declines, but its long-term finance growth pattern often becomes evident through recovery.
- History shows that the S&P 500, despite short-term volatility and downturns, has the potential for strong recovery after corrections, as demonstrated by sharp rebounds followed by double-digit gains in the subsequent 12 months.
- Long-term investing in the S&P 500 can be a viable strategy for growth despite short-term risks, as it has demonstrated resilience, consistently increasing in value over every rolling 20-year period, making money for long-term investors.
