Don’t Just Do Something. Stand There.
By Dr. Robert Votruba
Too often, individual investors have approached markets like emotional day trippers – hopping on and off at the worst possible stops. According to research by Dalbar, over the past 30 years the average stock investor has underperformed the market (S&P 500) by nearly 3% per year. The average bond investor fared even worse. The study points to behavior, not investment selection, as the primary culprit. Simply put, fear often causes investors to “sell low” while greed temps them to “buy high”.
But the tides may now be turning. After falling nearly 20% from their all-time highs set in February, stocks are now up nearly 25% from their post “Liberation Day” lows. The rebound was just as dramatic as the fall. Consider: after President Trump announced plans to install tariffs as high as 145%, U.S. stocks saw their 5th worst two-day percentage decline since WWII, part of a four-day slide totaling 12%. Bonds, typically a safe haven during periods of uncertainty, did not provide cover as they too were battered, having their worst week since 1987.
Then came the reversal. When the White House announced a 90-day pause on tariffs, markets surged. On April 9 the S&P 500 soared 9.5%, its best day in 17 years, and one of its best days ever. Today, the stock market hovers near all-time highs, while bonds have fully recovered as well.
Although the speed of the rebound surprised many, history tells us this pattern is familiar. Dramatic recoveries during periods of turmoil are not the exception—they’re the norm. In fact, many of the market’s best days occur near its worst. For example, on March 12, 2020, the S&P 500 dropped 9.5%—one of the worst days on record. The next day, March 13, it rebounded 9.3%.
Paradoxically, the majority of the market’s best days happen during bad times (you read that right). Over the past 30 years, half of the market’s best days occurred during a “Bear Market”. A Bear Market is defined as a 20% drop from a previous high, a mark that we came just shy of in April. Missing those “best days” has a devasting effect on long term returns. Consider that over the past 30 years a $10,000 investment in the S&P 500 grew to $240,278. Missing just 10 days over that time would have cut returns by over 50%, as the following chart illustrates.
As Dalbar uncovered, many individual investors historically jumped off the roller coaster before it made its inevitable climb back up. But, while there is no single, definitive answer as to why the market bounced back so quickly this past quarter, since it is influenced by many factors, several signs indicate that individual investors played a significant role. And not only did individual investors ride out the storm, evidence points to them being active buyers during April – they “bought the dip”.
A few theories help to explain this behavioral shift. First, over the past few years, many of the threats that individuals have been warned about never materialized, like the much hyped recession of 2022. Next, is that individual investors are getting better at understanding that time is their most powerful ally. Today, nearly 60% of American households own stock (including indirectly through mutual funds) – an all-time high. After decades of hearing that “time in the market” matters more than “timing the market,” investors may finally be taking that lesson to heart.
Still, risks remain. Tariffs, Middle East tensions and ballooning national debt still pose both short- and long-term challenges to the economy and financial markets. Many, including the President, have been calling for the Federal Reserve (the Fed), led by Chairman Jerome Powell, to cut interest rates. But the Fed remains reluctant, in part due to the economic uncertainty that tariffs could create. If the tariffs prove to be inflationary (so far that hasn’t shown in the data), the Fed will have to raise rates, not reduce them. For now, the Fed is in a wait-and-see mode.
The President’s frustration with Chairman Powell has boiled over into name-calling. But tension between presidents and Fed chairs is nothing new. In 1965, President Lyndon Johnson reportedly got physical with Chairman William McChesney Martin during a disagreement about rate policy at his Texas ranch.
The Fed is also reluctant to move on interest rates, because in addition to the uncertainty surrounding trade policy, economic data has been mixed, if not contradictory. So-called “soft data”, which is collected through surveys and based on opinions (i.e. consumer sentiment) suggests weakness while “hard data” which is collected through recorded outcomes (i.e. unemployment report) says that the economy is still on firm footing.
Even as investors stay focused on long-term goals, they face a newer challenge: political affective polarization. This term refers to the intense dislike that people feel towards their opposing political party, and it increasingly shapes how they perceive the economy. For example, according to Pew Research, 73% of Republicans expect the economy to be better in a year, while 64% of Democrats say it will be worse. As the chart below shows, Americans are consistently more optimistic about the economy when their preferred party occupies the White House—regardless of actual conditions. Recognizing this bias is essential for investors who want to separate politics from their portfolio decisions.
Many of the challenges that markets faced in the first half of 2025 remain, though perhaps with less intensity. Trump’s tariff pause is coming to an end with few trade deals secured. However, given the market’s reaction the first time around (especially the bond market), many expect the administration to take a more measured approached this time around. Interest rate policy is still uncertain, but we feel that the Fed is close to it’s “neutral rate”. At this point, dramatic rate cuts are not in the cards. And geopolitical risks remain.
While short-term factors will continue to shape headlines, long-term stock performance is driven by earnings and profitability, and on that front, things look solid. From 2001 – 2024 corporate earnings grew at an annual rate of 7.3%. According to FactSet, earnings are set to rise 9% in 2025, 14% in 2026 and 12% in 2027. Profit margins have also steadily improved—from 8% in 2001 to 13.4% today. Artificial Intelligence has certainly contributed, as has a resilient consumer.
It’s been said—perhaps by Clint Eastwood— “Don’t just do something. Stand there.” That’s exactly what many investors did during the recent volatility, and they were rewarded for their patience. Holding steady in the face of uncertainty is one of the hardest things to do in investing, but it’s also one of the most powerful. This past quarter reminded us that discipline isn’t about doing more—it’s about doing less of the wrong thing at the wrong time. If individual investors have truly started to embrace this mindset, it’s a milestone worth celebrating. The path forward will have bumps, no doubt—but standing firm, staying focused on long term goals, and letting time do the heavy lifting remains the most reliable strategy for long-term success.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. National Financial Network is not an affiliate or subsidiary of PAS or
Guardian. CA Insurance License Number - 0D23495. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts and statements of financial market trends are based on current market conditions and are subject to change without notice. Opinions mentioned are the authors. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results.8141799.1 Epx 07/27
