Why the Market’s Volatility Is Different This Time…and The Same. What You Should Expect.

What’s the most common question when looking at the market turmoil “du jour” (of the day)? How about this one: “Is it different this time?”

The world, including markets, economics, and geo-politics, is so complex and interrelated that usually there’s not one single cause for any big event that is getting attention. Because of that complexity, I’ve found it helpful to split that single question into two questions:

1. What is different this time?
2. What is the same this time?

After answering those two questions, we’re ready to address the likely underlying personal questions: “Should I change anything in my portfolio?” or “Should my expectation of future market returns and risks change?”

In answering question “What is different this time?”, usually there are obvious things that differ from one big market cycle to the next.

The catalyst for the current/next change in direction is almost never specifically the same as the catalyst for the last change. Think about the catalysts for the last 4 US stock market downturns of over 20%. The dot.com bust which began on September 1, 2000 was, in part, caused by an overly optimistic view of any company associated with the internet and was exacerbated by the 9/11 bombings in 2001. The Great Financial Crisis downturn started in October 2007 and was largely caused by bad mortgage lending practices and mortgage related derivative investment products. The COVID-19 downturn started in late January of 2020, the result of a global pandemic. The fourth 20% drawdown started in January of 2022 and was catalyzed by the combination of higher inflation (close to 10%) and the Fed’s response of quickly raising interest rates to fight it.

In 2025, we have a market that, at its worst, was almost 20% off the previous market high point in February of 2025. Most investors agree that the US threat of global tariffs and the turmoil they could cause are the primary, though not the only, catalysts for this latest volatility.

We had five drawdowns and five apparently different culprits. You’d be hard pressed NOT to observe that each one met the test of “this time it is different,” at least when we are looking for likely causes and contributors.

When you plot these downturns in a “drawdown chart” that shows only the negative market movement from the previous highpoint, things look pretty grim. This kind of chart isolates downside volatility but gives no information about what happened after the market recovered.

Now consider the second question: “What is the same this time?” I think that list is a bit longer.

First, there was fear, anxiety, and regret among many investors over portfolio values declining. There were also concerns about whether the apparent causes could ever be fixed or overcome.

Second, markets continued to function. There were buyers and sellers of stocks and bonds every market day, with the exception of a few days around 9/11. Of course, that was due to the physical destruction in New York City, which was and still is an important location for global market activity. We know that prices fell every time because markets stayed open and investors were able to buy and sell. Prices represent the point where willing buyers and sellers agree to transact. You could say that the underlying market structure stayed functional, resilient and secure each time.

A third commonality was that businesses, small and large, did everything they possibly could to minimize losses and find opportunities to return to profitability. Some were more successful than others. In the Global Financial Crisis, Lehman Brothers did go bankrupt. Other financial companies were forced to merge while others, like Zoom, found much larger opportunities than ever before during the COVID-19 pandemic.

The fourth thing that was true in each period was that the Federal Reserve did all it could to keep bond and cash markets functioning in 2022, by lowering interest rates to provide liquidity or by raising interest rates to fight inflation.

The fifth similarity between these periods is that the federal government, like the Federal Reserve, stepped in where it could to stem the negative momentum in markets and the economy. Examples you might remember include bailing out a few banks, insurers and automotive companies in 2008; funding private pharmaceutical companies to expedite a vaccine for the COVID-19 virus; and providing cash to businesses and individuals during that time to stabilize employment and stimulate the economy.

This brings us to a sixth and possibly most important commonality for investors to recall. In each case, a full recovery followed the 20% or more market decline. In US stock market history, every market decline has been followed by a full recovery, as well as new market highs being established and exceeded.

Looking at a performance chart of the S&P 500 from January of 1989 through May 30, 2025, you see a line that goes up significantly over the years. Overall, the S&P 500 rose at an average annualized rate of just over 11%. This becomes clear when you break it down by decades. The 1990’s average annualized return was 18.21%, and the 2000’s average annualized return was -.095%. The 2010’s saw an average annualized return of 13.56%, and, coincidentally, the 2020’s so far have seen an average annualized return of 13.56%. Long-term investors, especially those with 20-year time horizons, have seen very good returns even while enduring anxious times and events resulting from differing causes.

What about our third question, should my market expectations for return and risk change going forward?

Today, after over 30 years of working as an investment advisor and studying market history, here’s how I express my own market expectations:

1. I expect to be surprised by the timing and causes of market downturns. We all should. No one has been able to consistently pinpoint what will tip the market into decline, when it will happen, or how long it will last.
2. I expect that the markets will continue to function as they have in past crises.
3. I expect that small and large businesses will do everything they can to remain or return to profitability, which will benefit business owners and stockholders who are owners of publicly traded companies.
4. I expect the federal government and the Federal Reserve to do what they can policy-wise to help the economy grow and to promote employment and price stability.
5. Finally, I expect markets to provide positive long-term returns to investors. These returns will likely come in spurts and be interrupted by agonizing, fear provoking declines, but the long-term picture for US and globally diversified stock market investors is one of expected positive returns. Historically an annualized average long-term expectation of 8-10% for US stocks appears reasonable.

Put more simply and as we say regularly at Foster Group, the most reasonable expectations for investors include a short-term agnosticism (anything’s possible) and a long-term, educated optimism.

If you are wondering about your portfolio’s positioning relative not only to market events, but more importantly its effectiveness at helping you reach your goals, maybe it’s time to contact us for a conversation. We do this everyday with people just like you. At Foster Group, truly caring for our clients means taking the time to learn what’s in their hearts and helping them pursue their goals.