Here’s a dose of perspective on the markets following a swift rout on Friday. Call it a reality check for the bulls.
The analysis: A perfect storm of macroeconomic anxiety and tech stock exhaustion slammed into Wall Street last Friday, triggering a market plunge that erased more than $1 trillion in semiconductor stock value alone.
The primary catalyst was a hot May nonfarm payrolls report showing 172,000 new jobs added — roughly double Wall Street expectations. It instantly shattered hopes of near-term Federal Reserve rate cuts and reignited fears of another interest rate hike.
This macro shockwave drove Treasury yields higher, with the 10-year (^TNX) pushing past 4.5% and the 30-year (^TYX) topping 5%, heavily penalizing expensive, high-flying growth equities.
Read more: How to protect your money during turmoil, stock market volatility
Compounding all this was a bucket of cold water over the AI trade, sparked by a disappointing quarterly outlook from Broadcom (AVGO) that failed to raise full-year custom AI chip targets. That prompted a double-digit profit-taking across previous semiconductor darlings like Micron (MU), Marvell (MRVL), and Sandisk (SNDK).
Prior to Friday’s steep pullback, the S&P 500 (^GSPC) had surged by 15% during the prior two months, a 99th percentile return relative to history dating back to 1980, according to Goldman Sachs.
But the pullback is normal for markets in the grand scheme of things, as Creative Planning CEO Peter Mallouk pointed out in the chart below.
The S&P 500 has returned an average of 12% per year since 1980 and has done so despite an average intra-year drop of 14%. Oftentimes, the declines in a given year are much worse.
The real risk? Not being invested.
(Creative Planning)
The bottom line: After a surprising sell-off like the one seen on Friday, the natural response would be to take some gains off the table. One would not fault you for locking in profits after a major market run-up.
But keep in mind that the sell-off didn’t happen on bad economic or corporate news. That could ultimately mean the sell-off is short-lived, and history shows it’s often beneficial to ride out the volatility rather than head for the hills.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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