Some Perspective—and Discipline—for Recently Choppy Markets

As we enter the traditional season of merriment, markets are seemingly not in the festive spirit. After reaching their latest all-time high on 12 November, global stocks have fallen five of the last six trading days, down -4.2% over this stretch.^[i] This is nearly halfway to a correction (a sharp, sentiment-driven drop of -10% to -20%). Headlines we saw, particularly in America, blare warnings of worse to come. At times like this, we think investors benefit from taking a deep breath, watching carefully and remaining patient.

Again, to this point, markets are only at mini-correction or dip status. But even so, we don’t think corrections are calls to action. Our research shows these steep slides off recent highs tend to come and go fast and defy timing. In our experience, people see participating in a bear market (a lasting, fundamentally driven decline exceeding -20%) as the biggest risk to their financial goals. And we understand why. Those declines can be painful, and in the worst bear markets, it can feel like they will never end. We find the deep panic that reigns in their late stages can create the sense that recovery might take years and years, if it happens at all. Hence, we have seen many convince themselves acting early isn’t rash, but wise.

But no—our review of market history doesn’t back that supposition. Corrections and mini-corrections are much more common than bear markets.^[ii] Consider the US-orientated S&P 500 index, which we cite here for its long history of reliable data. Since good S&P data begin a century ago, the median time from a bull market peak to full recovery is 26 months.^[iii] That period includes the downturn and recovery. Now, that averages out extremes on both ends, but we think it shows bear markets aren’t a permanent setback if you endure them. Bull markets have always followed bear markets, marching to higher highs.^[iv]

In our view, the real setback is missing bull market returns. Whilst bull markets are a remedy for bear markets, our research shows there isn’t a reliable remedy for missed bull market returns. We find investors that miss those generally can’t get them back without taking undue risk, which could end up setting them back even further from their goals. Therefore, when investors assess market volatility, we think it is vital to do so from the standpoint of, if I get out of stocks now, what is the probability I could be wrong and miss more bull market?

To us, this isn’t an easy question to answer. It takes care. Calm. Discipline. And, yes, time. So to reduce the risk of getting fooled by a correction, we don’t think it is wise to take defensive action for at least three months after a peak like 12 November’s. Maybe that sounds frightfully long, but consider: Within three months, a correction will most likely show itself. Our research shows corrections are steep and panicky, much like we saw earlier this year, in the aftermath of US President Donald Trump’s Liberation Day tariff announcement.^[v] Bear markets, by contrast, tend to have slow, rolling tops.^[vi] That might look like a slow, gentle decline. Or, it might look like a drop, then a partial recovery that lures more people in, then another drop, then a small rally, lather, rinse, repeat. Generally, markets see an average monthly decline of -2% or so, once the ups and downs fade into a trend.^[vii] Given the market is down more than twice that in mere days, for now, the downturn looks correction-like to us.^[viii]

Also correction-like, in our view: Commentators we follow have attached a narrative to the volatility. From what we have seen, the story is the alleged artificial intelligence (AI) bubble, something that has preoccupied investors for two years and counting. This has always struck us as a false fear, given the companies at the centre of it are growing earnings rapidly, not burning through cash and racking up losses like the dot-coms 25 years ago.^[ix] It also isn’t the kind of surprise that typically causes a bear market, in our view. Instead, we think it is the sort of widespread worry people usually use corrections to justify. We are seeing a fair amount of that.

We have also seen chatter about September’s middling US jobs report, which finally came out Thursday after government-shutdown-related delays, making another US Federal Reserve (Fed) rate cut less likely in December.^[x] We think that is a pretty weird supposition, given September is far in the rearview, but we find Fed sentiment is often weird. But also, this is another long-running talking point, and we think markets are well aware of Fed rate projections. This bull market also had plenty of good times without Fed action, so we doubt rate cuts are suddenly necessary now.^[xi] This, too, seems like a correction-like narrative to us.

Still, we aren’t dismissing the possibility of a bear market. Not because we think one is imminent, but because complacency and pride tend to go before a fall. So we will be watching for a few things:

• Does the currently steep drop morph into something more gentle?
• Does exhortation to buy the dip gain prominence commonly in headlines we follow?
• Do stock market bulls or bears get more credibility in media coverage?
• Do big fearful narratives continue to gain traction?
• Do other negative developments surface to little notice, and do they have the power to snowball into something big?
• Do people jump on stale, backward-looking data as reason to be bullish or bearish?
• Are there signs that trouble in small, niche markets (e.g., private credit) could spill over?

So we will put our heads down, keep our eyes open, cast a wide net and keep you updated. But for now, we think investors’ best move is to practice patience and discipline and keep their long-term goals top of mind. In our view, short-term reactions don’t benefit investors anywhere in a correction or a bear market. Patience is the watchword.