By Sam Ro of Tker

I first saw a version of this chart back in 2013, when I was the markets editor at Business Insider.

Since then, I’ve looked at it over and over again to remind myself of how volatile the stock market can be over short-term periods.

It comes from JPMorgan Asset Management’s regularly updated Guide to the Markets. Going back to 1980, the chart shows each year’s annual return for the S&P 500 in gray and its intra-year max drawdown (i.e., a decline from its high) in red.

There are a few observations to note:

• You can get smoked in the short term. In each year, the S&P 500 has experienced an average max drawdown of 14%. And there are many instances of 20%+ sell-offs like the one we’re experiencing now.
• The market usually gains more than it loses. As you can see in the chart, the S&P 500 ended the year positive in 32 of the 42 years measured. This means that in most years, the market has recovered the losses experienced in the max drawdown.
• The market can quickly recover huge losses. 1987, 2009, and 2020 had larger max drawdowns than what we’ve experienced so far this year, yet the market closed each of those years higher. It’s unusual for this to happen, but it’s not unprecedented.
• Average rarely happens. You might’ve been told at some point that the stock market has historically returned about 10% on average. But there are very few years when the market has actually risen by 10%. That average is a function of many better-than-average years, many lackluster years, and a handful of pretty awful years.

Stomach-churning sell-offs like the one we’re living through right now are not unprecedented. It speaks to two conflicting realities investors must cope with: Read more