Five charts that put market volatility in perspective

President Trump’s tariffs have put market volatility back in the spotlight.

After tariffs on nearly all trading partners were announced on 2 April, the S&P 500 Index briefly descended into bear market territory — a rare sign of extreme economic pessimism when stocks fall by 20% or more from their peak. A 90-day pause on reciprocal tariffs declared on 9 April caused the S&P to skyrocket 9.5%, only to fall 3.5% the following day.

The damage spilled over to the US Treasury market, which may explain why Trump paused some tariffs. The yield on the 10-year Treasury, a cornerstone of the global financial system, widened to 4.34% from 4.01% a few days prior — an indication of market turbulence.

Given the uncertain environment, investors may have doubts about their investment approach. It is natural to seek calmer shores when markets are choppy. But it is equally important to step back, gain perspective and look towards the horizon.

History shows stock markets have always recovered from previous declines although there is no guarantee downturns will lead to rebounds. Here are five insights that can help investors regain confidence and stay invested for the long haul.

1. When in doubt, zoom out

If you go back to 2018, the first Trump administration’s tariffs on China sparked a trade war that panicked markets and dominated the news, much like today. What’s more, two US government shutdowns, challenging Brexit negotiations and a contentious midterm election further stoked market pessimism.

How did stocks react? Fears that a trade war between the two largest economies would lead to a global slowdown sent the S&P 500 Index down 4.4% in 2018, falling as much as 19.4% from 20 September to 24 December that year. But the index recovered sharply in 2019, up 31.1%, as trade deals were announced and consumer spending steadied.

Will market choppiness in 2025 give way to smoother sailing in 2026? There is no way to tell, but next year’s midterm elections could shift the Trump administration’s focus to trade deals and more bread-and-butter issues that add economic optimism rather than uncertainty.

2. Markets typically have recovered quickly

While markets can be treacherous during periods of heightened volatility, they have often bounced back quickly. Indeed, stock market returns have typically been strongest after sharp declines. The average 12-month return from the S&P 500 immediately following a 15% or greater decline is 52%. That is why it is often best to remain calm and stay invested.

How often do market corrections of 10% or more in the S&P turn into entrenched bear markets? Turns out, not often. More common are short periods of pullbacks ranging from 5% to 10%. While these may feel unsettling, a drop of 5% occurred twice per year on average, while corrections of 10% or more happened every 18 months on average, from 1954 to 2024. And while intra-year declines are common, the good news is 37 of the last 49 calendar years have finished with positive returns for the index.

3. Bear markets have been relatively short-lived

A long-term focus can help investors put bear markets in perspective. During the period starting 1 January 1950 and ending 31 December 2024, there were 11 periods of 20%-or-greater declines in the S&P 500. And while the average bear market decline of 33% per year might have been painful to endure, missing out on the average bull market’s 265% return could have been far worse.

Bear markets are also typically much shorter than bull markets. Bear periods have averaged 12 months, which can feel like an eternity, but pale in comparison with the 67 months of average bull markets — another reason why trying to time investment decisions is ill-advised.