Let’s take a look back at the 2008 Global Financial Crisis bear market for a good example.
When the bull market started in March 2009, the S&P 500 rallied +63% from the bottom through the end of the year – very close to the +68% rally following the Covid-19 bear. In 2010, which was the second year of that bull market, the S&P 500 endured an intra-year correction of -16%.
The correction was scary at the time, but also healthy – the market finished up +13% in 2010. We have seen this very regularly throughout history, where the second year of a bull market is choppy but also finishes positive. I could see a similar outcome in 2021.
So, how should investors prepare for market volatility or a double-digit correction? Using history as a guide, it is time to mentally prepare for a correction now, so when it arrives, you expect it and can avoid making any knee-jerk, reactive decisions.
Adapted from Zacks "Mitch on The Markets" on 8 May 2021