Flat but Furious: The S&P 500's Volatile Start to 2025
by Charles Rotblut | May 15, 2025
Year to date, the S&P 500 index is essentially unchanged as of the close on Wednesday, May 14, 2025: up 0.19%. This number may seem surprising given the undulating roads Mr. Market has been on.
The S&P 500 has already experienced five days with a daily change of more than 3%: two up and three down. The last time the index experienced a daily change that big was two and a half years ago. The S&P 500 gained 5.5% on November 10, 2022.
It is not just the daily moves or the bigger intraday swings—the speed of these moves has caused investors to feel like they have been on a roller coaster. The S&P 500 lost 18.9% of its value in a period of just seven weeks between the middle of February and early April. It then needed just five weeks to rebound to breakeven for the year. (The large-cap index remains below its record high, however.)
One of the insights we shared during last month’s webinar, “Volatile Markets? How to Stay Calm and Invest Smarter in 2025,” was how big up and down days are frequently clustered together. This year has been no exception. Here are the S&P 500’s five biggest daily moves in chronological order:
- April 3: (4.84%)
- April 4: (5.97%)
- April 9: 9.52%
- April 10: (3.46%)
- May 12: 3.26%
Four of them occurred within a span of just eight calendar days. They also corresponded with the S&P 500 hitting a bottom. Those investors who did not panic during the heightened volatility and kept their portfolios unchanged have emerged largely unscathed. [My 403(b) plan balance was roughly even compared to six months ago when I checked it over the weekend—my first time reviewing the account since last November.]
Those who opportunistically bought during the downturn have fared even better. I was among those who did, though in a different account than my 403(b). My reasoning was simple: Corrections—declines of 10.0% to 19.9%—are more common than bear markets, which are declines of 20% or more. Even if the stock market had continued to fall, history shows most bear markets bottoming with losses of less than 30%.
The stock market is never guaranteed to repeat past performance, but history does provide a good guide for using downside volatility to your advantage.
Putting This Year’s Volatility Into Perspective
This year is already the fourth most volatile of the past 10 years based on the number of days the S&P 500 has closed with a gain or loss of 2% or more. There have been 11 such days so far. Given the ongoing headline environment, it seems likely that 2025 will exceed the third-most-volatile year of the past decade, 2018, with 16 days of moves of 2% or more in either direction.
We have seen higher levels of volatility in recent times: 2020 and 2022. Bear markets occurred in both years.
Volatility is often viewed negatively even though it refers to the magnitude of change in stock prices—and not their direction. Nobody complains when stocks make big upside moves. It is the downward drops that few investors like.
Yet, downside volatility is a gift to investors saving for long-term goals. Lower prices enable you to buy more shares with each dollar invested. If you are putting money into long-term investments, be greedy when stocks go on sale. Your future self will thank you.
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Missing the Market's Worst and Best Months
The market’s best and worst months have been clustered together. A trend-following strategy can help investors avoid extreme volatility. -
Design Your Portfolio With the Worst 2% of Times in Mind
A “suboptimal portfolio” that you can tolerate is better than an “optimal” one that you can’t stick with. -
16 Red Flags to Watch for in a Company’s Financial Statements
Use our handy financial health checklist in the May 2025 AAII Journal to spot potential problems in a stock before they cause you to incur a large loss.
AAII Sentiment Survey
Pessimism among individual investors about the short-term outlook for stocks decreased in the latest AAII Sentiment Survey. Meanwhile, optimism and neutral sentiment increased.
Bullish sentiment, expectations that stock prices will rise over the next six months, increased 6.5 percentage points to 35.9%. Bullish sentiment is below its historical average of 37.5% for the 18th time in 20 weeks and is above 30% for only the sixth time this year.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 0.6 percentage points to 19.7%. Neutral sentiment is unusually low and is below its historical average of 31.5% for the 43rd time in 45 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, decreased 7.1 percentage points to 44.4%. Bearish sentiment is unusually high and is above its historical average of 31.0% for the 24th time in 26 weeks.
The bull-bear spread (bullish minus bearish sentiment) increased 13.6 percentage points to –8.5%. The bull-bear spread is below its historical average of 6.5% for the 19th time in 21 weeks.
This week’s special question asked AAII members what they think about the Federal Reserve’s decision to keep interest rates unchanged.
Here is how they responded:
- It was the right move: 73.6%
- They should have cut rates: 17.1%
- They should have raised rates: 2.7%
- Not sure/no opinion: 6.6%
Bullish: 35.9%, up 6.5 points
Neutral: 19.7%, up 0.6 points
Bearish: 44.4%, down 7.1 points
Bullish: 37.5%
Neutral: 31.5%
Bearish: 31.0%
See more Sentiment Survey results.
May 8, 2025 My Six Key Lessons From Warren Buffett
May 1, 2025 Five Moves to Stay Calm When the Market Isn't
April 24, 2025 April Charts of Interest: The Bond Market Gets Jittery
April 17, 2025 All-Time High Trend Strategies Are Not Without Costs and Risks
Discussion
Dennis from CA posted about 1 year ago:
"Nobody complains when stocks make big upside moves." Except those of us who prefer paying less for future earnings and dividends.
Charles Rotblut from Illinois posted about 1 year ago:
Hi Dennis,
The increase in valuations caused by those big upward price moves rewards us value investors for buying stocks on the cheap.
-Charles
Barry from TX posted about 1 year ago:
A few Buffett aphorisms that support Charles' series on how to handle the recent downturn: #1 “Don’t just stand there, do nothing!” #2 "It's good to learn from your mistakes. It's better to learn from other people's mistakes." #3 "Outstanding long-term results are produced primarily by avoiding dumb decisions, rather than by making brilliant ones." #4 "The Stock Market is designed to transfer money from the Active to the Patient." #5 Mark Twain said: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that’s just ain’t so.”
vic smyth from illinois posted about 1 year ago:
Before the tariff selloff the S&P500 was viewed as being overvalued based on the Shiller CAPE ratio. Now it's back to even for the year, still historically overvalued even with the increase in earnings reported, with added uncertainty about future earnings due to tariffs. Yes, the sell-off was a great time to rebalance (as i posted in a discussion on April 4th). I'm wondering if it's not a great time now to rebalance again, this time selling stocks and buying bonds. If you keep a portfolio of 50% stock and 50% Long Term US Govt Bonds, such as ETFs SPY and TLT and rebalance back to 50-50, when it reaches 55%-45%, you would be surprised how often this 50-50 portfolio beats the S&P 500. It's only during the past 5 years that the SPY 500 has runaway from the 50-50 portfolio by a wide margin. And I wonder if that is not a danger sign in itself, as there have been numerous 10-year periods where bonds have outperformed stocks. I would be happy to share a computer generated csv file of the 50-50 SPY-TLT portfolio if anyone is interested.
Barry from TX posted about 1 year ago:
Vic, #1 I enjoyed your data-based analysis on rebalancing TO the market trends. #2 The traditional rebalancing means adjusting your portfolio allocations and diversification TO whatever "risk tolerance" you believe/say you have. #3 When the market sends signals that the correlations among portfolio assets have changed, and you have "worries and discomfort," your amygdala is sending "fight or flight" signals that the risk preferences "you believe/say you have" in the past do not align with your current psychological state. #4 For many, their portfolio is a Rorschach of their "risk profile." It is their Freudian "das ding an sich" (the “thing-in-itself”), a more ultimate reality that lurks behind their knowledge and apprehension of "risk." #5 "Received wisdom says "buy and hold" a 60% equities / 40% fixed income allocation and gut out amygdala signals. (See quotes above.). #6 April 22, 2025, Morningstar published a white paper, "2025 Diversification Landscape." It is a 50-page or so "look at how key asset classes performed in 2024, how correlations have changed, and the implications for portfolio building." It traces and COMPARES across the last 50 years the performance of 3 portfolios (using MS Index benchmark data) - (1) 100% US Lg Caps, (2) 60% Equites / 40% Non-Equites, and (3) a highly diversified portfolio that holds 11 assets classes in proportions of 40% US & INTL equities / 40% US & INTL bonds/FI, and 20% diversified assets. #7 The paper provides 35-40 data-intensive charts and diagrams that COMPARE historical CORRELATIONS among the 3 portfolios and across EACH asset class. #8 I found it highly informative. #9 Spoiler Alerts: (1) "A 60/40 portfolio improved risk-adjusted returns vs a 100% stock BM in >83% of the rolling 10-year periods dating back to 1976. (2) "Diversification strategies that have worked in the past may not work in the future." #1009 Those two ought to set off a few "fight or flee" signals.
Barry from TX posted about 1 year ago:
Mike Tyson's comment to people who say they can beat him fits Mr. Market, too: "Everybody has a plan until they get punched in the face.”
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