Markets are in recovery mode following the most volatile 5-day stretch of the year last week.
But don't panic. Pullbacks and dips aren't anything new.
"Pullbacks are the stubbed toe of the stock market," LPL Financial's Adam Turnquist and George Smith wrote in a note to clients on Monday. "The pain [is] acute but not worthy of a full-blown panic."
The duo blamed last week's volatility on overbought financial conditions in Big Tech, the unwinding of the yen carry trade, and waning confidence in a soft landing following disappointing jobs and manufacturing data.
"Like a stubbed toe, pullbacks in the market are inevitable, something investors tend to forget during low periods of volatility."
It's true markets have enjoyed an impressive run. Excess pandemic savings, strong corporate earnings, and an artificial intelligence-fueled tech rally are just some of the reasons why stocks have rallied despite the largest and fastest rate-hike cycle from the Fed in 40 years.
But as the old adage goes, all good things must come to an end.
Last week, the CBOE Volatility Index (^VIX), also known as Wall Street's fear gauge, surged to its highest reading since March 2020, a further sign that bad news for the economy is once again bad news for stocks.
Yet, as Yahoo Finance's chart of the day shows, the history of the S&P 500 reminds us that dips, pullbacks, and even corrections of 10% or more are normal and even healthy elements of a bull market.
According to data compiled by LPL Financial, stocks experience a pullback of over 5% more than three times per year and a correction of 10% or more around once a year, even in bull runs.
In other words, "94% of years since 1928 have experienced a pullback of at least 5%, and 64% of years have had at least one 10% correction," LPL Financial said. "We believe that how common these occurrences are should provide comfort to equity investors, allowing them to be patient, stay investing, and most importantly, to not panic."