On this day one year ago, the stock market reached the lowest point during the pandemic-related crash. From the all-time high set the month prior, the S&P 500 fell roughly 34% in 23 trading days as investors tried to assess Covid-19’s impact on the economy. By some measures, the selloff was the most rapid on record, with March experiencing a few of the largest single-day declines of the last 90 years (trailing only the Black Monday crash in October 1987). At the time, few were calling for the selling to subside. Weeks into the market’s recovery, many market pundits were still predicting that we had not yet seen the bottom. Fast forward to today, and the S&P 500 is up about 76% from the low, representing about six years’ worth of market gains crammed into one. Let’s take a moment to reflect on some of the lessons learned from this dramatic market episode.

Prices are Forward-Looking

Asset prices are driven by expectations for the future. This critical concept generated considerable confusion during the selloff and subsequent recovery, leaving many investors feeling as though the market was disconnected from reality. As an example, the S&P 500 peaked on February 19th and quickly began to decline thereafter. The losses accelerated before the lockdowns began and well before their impact showed up in the economic data. With uncertainty building, investors incorporated the potential for extreme downside scenarios into asset prices. The jobless claims report published on March 26th, which illustrated a record number of employee layoffs, was the first piece of data to reflect the economy’s slowdown. By that time, however, the market was already a few days into the recovery! A significant degree of monetary stimulus enacted by the Federal Reserve and expectations for fiscal stimulus from Congress provided the market confidence that the economy could weather the public health crisis. This led to recovering asset prices well before any improvement in the economy or the fight against Covid-19.


Diversification Still Works

With interest rates anchored at persistently low levels over the last 10 years, many have questioned how effectively bonds would be able to diversify a portfolio. When the market selloff began, the 10 year Treasury bond was yielding about 1.56%, which is actually lower than what it yields today. While stocks declined about 34%, high-quality bonds, proxied by the iShares 3-7 Year Treasury Bond ETF, gained about 4.2%. During the market crash, high quality-bonds offered much-needed stability to investor portfolios. They provided the opportunity to rebalance by selling assets that had held up well and buying assets that had become discounted. For investors that cannot stomach the gyrations of an all-equity portfolio, incorporating bonds continues to be a great way to reduce volatility.


You Can’t Time the Market

Witnessing the market decline as much as it did last year can be a harrowing experience. For many, there was a strong temptation to sell stocks to avoid further losses. There are a variety of problems with doing this. For starters, if an investor is comfortable holding stocks prior to a selloff, a subsequent decline should make them more attractive, not less. As the price of a well-diversified portfolio declines, its prospective return increases. Additionally, there is never an “all clear” sign that signals it is time to get back in. The timing of a market rebound can only be known in hindsight. By definition, the recovery does not begin until prices hit their bottom, which generally occurs when the outlook is the least favorable. Investors that get out of the market to wait for the dust to settle are not only giving up the gains associated with the initial recovery, but they are effectively waiting for prices to rise, which lowers future expected returns. Making matters worse, many investors that sell near the bottom endure the similarly painful experience of watching the market recover without them in it.

While it is more comfortable to own stocks when they are rising, it is important to remember that the discomfort associated with market volatility is precisely the reason stocks typically generate higher returns than less volatile alternatives like cash and bonds. It is one thing to want the reward for investing in a diversified equity portfolio. It is another to stick with the allocation through thick and thin. Only investors that stay disciplined will reap that benefit. Those that cannot are often penalized by losses that become locked in through selling.

Perhaps the most important lesson from the selloff last year is that it is critical to make a plan when things are calm, for the reality that they will not always be. This wasn’t the first time the markets have crashed, and it certainly won’t be the last. The key to investment success is creating a plan and then sticking to it.


  • Last week the Federal Reserve announced its decision to keep its benchmark interest rate unchanged at 0.00 – 0.25% as expected. Additionally, there were no announced changes to the current bond buying program (QE).
  • Once a quarter, the Fed publishes its Summary of Economic Projections (commonly referred to as the dot plot). The most recent dot plot published last Wednesday reflected a significant improvement in the Fed’s outlook on the economy. GDP estimates for 2021 were increased from 4.2% to 6.5%, unemployment expectations declined from 5.0% to 4.5%, and inflation estimates for the year increased to 2.4% from 1.8%. Finally, four Fed officials expected at least one 0.25% rate hike by the end of 2022. When the previous dot plot was published in December, only one official believed there would be an increase in 2022.
  • Notable economic data to be published this week includes durable goods orders and a prelim reading on services and manufacturing PMIs on Wednesday, jobless claims and a revised Q4 GDP estimate on Thursday, and consumer sentiment and inflation on Friday.



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Source: Morningstar Direct.

Source: Morningstar Direct.



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

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


Source: MarketWatch

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Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 12+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership as well as analytics and operational efficiency for the Firm's Financial division. He lives in Omaha, NE, with his wife Kirsten.

  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
  • BSBA, University of Nebraska, Lincoln, NE

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