NEW YORK (AP) —
The huge swings rocking Wall Street and the global economy may feel far from normal. But, for investing at least, drops of this size have happened throughout history.
Stomaching them is the price investors have had to pay in order to get the bigger returns that stocks can offer over other investments in the long term. Here's a glimpse at what's behind the market's wild moves and what experts advise investors young and old to consider:
Wall Street's main benchmark, the S&P 500, has lost more than 16% since setting an all-time high on Feb. 19, mostly because of worries about President Donald Trump's tariffs.
Any kind of uncertainty around the economy will give Wall Street pause, but the trade war is making it more difficult for companies, households and others to feel confident enough to invest, spend and make long-term plans.
The tariffs announced on “Liberation Day” sent stocks reeling to their worst day since since the COVID crash of 2020 because they were much harsher than investors had been expecting. They also raised the fear that Trump may push through with them to win long-term gains, such as more manufacturing jobs in the United States.
The hope among investors had been that Trump was using tariffs merely as a bargaining chip to win concessions from other countries. Some big names on Wall Street still think that's the case, and a moderation of tariffs would help stocks recover, but it's less of a certainty now.
Regularly enough. The S&P 500 has seen declines of at least 10% every year or so. Often, experts view them as a culling of optimism that can otherwise run overboard, driving stock prices too high.
Before this recent downswing, many critics were saying the U.S. stock market was too expensive after prices rose faster than corporate profits. They also pointed to how only a handful of companies drove so much of the market's returns. A group of just seven Big Tech companies accounted for more than half of the S&P 500's total return last year, according to S&P Dow Jones Indices.
Anytime an investor sees they’re losing money, it feels bad. This recent run feels particularly unnerving because of how incredibly calm the market had previously been. The S&P 500 is coming off a second straight year where it shot up by more than 20%, the first time that's happened since baggy pants were last in style before the millennium.
Selling may offer some feeling of relief. But it also locks in losses and prevents the chance of making the money back over time. Historically, the S&P 500 has come back from every one of its downturns to eventually make investors whole again. That includes after the Great Depression, the dot-com bust and the 2020 COVID crash.
Some recoveries take longer than others, but experts often recommend not putting money into stocks that you can't afford to lose for several years, up to 10. Emergency funds, for things like home repairs or medical bills, should not be invested in stocks.
“Data has shown, historically, that no one can time the market,” said Odysseas Papadimitriou, CEO of WalletHub. “No one can consistently figure out the best time to buy and sell.”
For years, the U.S. stock market was the best by far to invest in worldwide. Now, more investors are questioning wither U.S. exceptionalism is dead.
But it could all be a reminder that investors often do best when they have a mixed set of investments rather than going all-in on just a few. And investors may no longer be as diversified as they thought after years of sheer dominance by the Magnificent Seven over the U.S. stock market and by Wall Street over global markets.
“It is hard to roll with the punches when some days you feel like your portfolio is being pummeled,” said Brian Jacobsen, chief economist at Annex Wealth Management. “But those moments should pass. A diversified strategy that is thoughtfully adapting to changing circumstances can’t prevent the punches, but it can help soften the blows.”
Phil Battin, CEO of Ambassador Wealth Management, advises investors to make sure they diversify their investments across regions and sectors to reduce risk. He says to lean towards “resilient sectors such as consumer staples, utilities and health care, which are less reliant on international trade.”
The proliferation of online trading platforms and the ease of smartphones has helped create a new generation of investors who may not be used to such volatility.
But the good news is younger investors often have the gift of time. With decades to go until retirement, they can afford to ride the waves and let their stock portfolios hopefully recover before compounding and eventually growing even bigger.
Stephen Kates, financial analyst at Bankrate, says “now is not the time to make emotional decisions.” Young investors should “re-anchor to your (long-term) goals,” and consider using a financial advisor to help navigate uncertain times. “Investors with ample time to stay invested should remember how lucrative patience has been over the last 15 years,” Kates said.
Older investors have less time than younger ones to allow their investments to bounce back. But even in retirement, some people will need their investments to last 30 years or more, said Niladri “Neel” Mukherjee, chief investment officer of TIAA Wealth Management.
People who have already retired may want to cut back on spending and withdrawals after sharp market downturns, because bigger withdrawals will remove more potential compounding ability in the future. But even retirees, at least in the early part of retirement, should still be invested in stocks to prepare for the possibility of decades of spending ahead.
“You may want to slow that down and pick that back up once the market recovers,” Mukherjee said, “but it all comes down to having that conversation with your adviser and your portfolio manager.”
No one knows, and don't let anyone tell you otherwise.
A screen displays financial news as traders work on the floor at the New York Stock Exchange in New York, Thursday, April 3, 2025. (AP Photo/Seth Wenig)
A screen displays financial news as traders work on the floor at the New York Stock Exchange in New York, Thursday, April 3, 2025. (AP Photo/Seth Wenig)
