If the stock market has felt like a roller coaster in 2025, you are not imagining things. The first few months of the year brought a steep decline that was punctuated by the “Liberation Day” tariff announcement. Then came a powerful rally, lifting large U.S. stocks nearly 40 percent from the April lows⁽¹⁾. While things still seem relatively calm, volatility has begun creeping higher again. This begs the question: Is this normal, or is something breaking?

Most people don’t get a warm and fuzzy feeling from watching the value of their investment accounts decline. Seeing your balance swing by large sums in a day or week can feel unsettling, even if you know that this comes with the territory. While market selloffs are unpleasant, diversified investors need not fear these market gyrations. It’s important to understand that bouts of volatility are a normal and healthy part of how the market functions.

The chart below illustrates just how common large pullbacks in the market are. Over the last century:

• Almost every year since 1929 (93% of them) has had at least one market decline of -5% or more.
• Nearly two-thirds of the years have had a decline of at least 10%. A loss of this size is commonly referred to as a ‘correction.’
• Roughly one in four years has experienced a decline of 20% or more, which generally defines a ‘bear market.’  

In other words, a year without at least a decent-sized pullback would be the exception, not the norm.

Source: Morningstar Direct. Data from 1/1/1929 to 12/31/2024. Returns calculated from the S&P 500 PR USD Index using daily data. Excludes the impact of dividends.

Despite all those dips, corrections, and bear markets, the U.S. stock market has still returned a little over 10% per year on average over the last 100 years. When you let those returns compound, the growth can be dramatic. The chart below shows that one dollar invested in the stock market in 1926 would have grown to more than $18,000 by the end of 2024. Most of us will not invest for a full century, but even over 30 or 40 years, the combination of steady saving and compounding can turn modest annual returns into meaningful wealth.

Source: Morningstar Direct. Data from 1/1/1926 to 12/31/2024. Returns calculated from the IA SBBI Large-Cap TR Index using annual data. The chart is presented in logarithmic scale. Includes the impact of dividends.

Nobody knows whether the small bouts of volatility we have seen in recent weeks will fade away or develop into a larger pullback. In reality, a correction could actually be a good thing for market stability. After such a strong run, prices in parts of the market appear to have moved well ahead of underlying business results. This is particularly true within AI and the so-called “Magnificent 7.” A correction could give revenues, earnings, and cash flows the opportunity to catch up. That kind of reset can release some of the pressure that has built up and reduce the odds of a larger and more damaging crash later.

Conversely, if enthusiasm in these fast-growing companies continued unchecked, prices could climb even further above what can be justified by the underlying businesses. A sharp shift in sentiment from “must own at any price” back to “what is this actually worth?” could turn a normal pullback into a more painful crash. That boom-and-bust pattern makes it harder for investors to stay disciplined and is not healthy for the long-term functioning of the market.

While market drawdowns are uncomfortable, they can also create opportunities for patient investors:

• If you are still in the accumulation phase, volatility lets you buy more shares at lower prices. Your regular contributions are effectively putting more money to work when things are on sale.
• For both workers and retirees, a disciplined rebalancing program can help. Periodically selling a bit of what has done well and buying more of what has lagged is a simple way to “buy low and sell high” over time.
• For investors with taxable accounts, tax-loss harvesting can turn temporary declines into a long-term benefit. Realizing losses and reinvesting in similar investments can improve the overall tax efficiency of your investments.

Absent the ability to peer into the future, investors are best served by focusing on what they can control. Is your financial plan up to date and reflective of your current situation? Is your investment portfolio properly diversified and aligned with that plan?

If the answer to these questions is “yes,” then you need not fear volatility. Short-term ups and downs are the admission price investors pay for the long-term growth that stocks have historically provided.

Week in Review

• The release of key labor market data has been pushed back following the 43-day federal government shutdown. The September jobs report, originally slated for early October, is now expected on November 20th. Meanwhile, the October employment data may face substantial delays or potentially be skipped entirely, leaving policymakers and markets with reduced visibility into current labor market conditions.
• According to FactSet, 92% of the S&P 500 reported Q3 results as of November 14th. The earnings growth rate for the quarter ended at 13.1% year-over-year, which would mark the fourth straight quarter of double-digit earnings growth for the index. Market participants will be focused on Nvidia’s November 19th earnings report, a key indicator of momentum for the company at the center of the AI ecosystem.
• The NFIB Small Business Optimism Index slipped 0.6 points to 98.2 in October, its lowest level since April, but still above the long-term average of 98. The decline was driven by weaker earnings and sales, while labor quality remained the top concern for 27% of owners. The Uncertainty Index fell sharply to 88, its lowest reading this year, signaling reduced ambiguity despite ongoing hiring challenges.

Hot Reads

Markets 

• The Fed is Increasingly Torn Over a December Rate Cut (WSJ)
• Bonds Are Heading for the Best Year Since 2020 (WSJ)
• The AI Boom Is Looking More and More Fragile (WSJ)

Investing 

• Ben Graham & Bull Market Brains (Ben Carlson)
• This Small-Town Pension Fund Has a Warning for Millions of Retirement Savers (Jason Zweig)
• Why We Could Use a Good, Long Bear Market (WSJ)

 Other 

• Anthropic CEO Warns That Without Guardrails, AI Could Be On Dangerous Path – 60 Minutes (YouTube)
• F1 2026 Engines: What’s Really Changing (YouTube)
• How Stretching Actually Changes Your Muscles (YouTube)

Markets at a Glance

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Economic Calendar

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION