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While an uptick in volatility at some point is inevitable, following an unusually long period without a market pullback, it’s not likely to mark the end of the bull market.

S&P 500 days without a 5% drawdown

Equity markets continue to climb the proverbial wall of worry, reaching a series of new highs throughout 2021. The rise in stocks has been largely uninterrupted since November, without even a 5% market pullback, supported by abundant monetary and fiscal stimulus and solid economic growth and corporate earnings. But with a number of concerns on the horizon, investors are wondering: what’s next?

While the market could certainly continue its upward trend, the recent extended period of limited volatility is unusual in a historical context. As illustrated above, the S&P 500 index has now surpassed 200 consecutive trading days without a drawdown of at least 5% from a recent peak — more than double the historical average of 84 days since 1950. In fact, there have only been eight other instances of such a long stretch in the past seven decades. Of course, the market will turn volatile again at some point, and investors should be prepared for that. The catalyst for a change in sentiment is always unpredictable. Potential factors today include elevated valuations, the evolving inflation outlook, higher tax rates, the debt ceiling, and a hawkish shift in Fed policy — any of which could cause investors to recalibrate their expectations.

Despite these potential concerns, the outlook for economic growth in the coming quarters remains solid, and Fed policy is expected to remain broadly supportive, both of which should support a continuation of the current bull market. While the path ahead could be a bit bumpier than the relatively calm conditions of the last 10 months, periods of equity market volatility are a natural and unavoidable part of the market cycle and ultimately create opportunities for patient, long-term investors.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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