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ROBERT ARMSTRONG: Welcome to Charts That Count. US stock markets are now down more than 25% from their highs of less than a month ago. And we have just experienced the biggest one-day selloff in American markets in over 30 years. That makes this the perfect time to take a step back and to take a deep breath.
This is a chart of the S&P 500 over the last decade. There are two big points to make which will help put the recent furious selloff into perspective. The first is that for all the fear and fury, we are still not down to the lows hit at the end of 2018. Less than a year and a half of returns have been given up, except in certain sectors like banking and energy, which have broken that important threshold.
The second important point to make, which long-term investors who have held the index for the full decade have made an average nominal return of 10.2 percent. The reason this figure is important is because over the very long term, annual inflation-adjusted returns for American markets average about 7%. And they mean revert to that level very consistently over time.
So investors who've been in the market for 10 years earning 10.2 percent and with inflation low at under 2% are still making above average returns over time. That is both reassuring and frightening, reassuring because as has been true for a long time, investors who simply keep their money in the market are still doing just fine.
On the other hand, of course, the fact that 10-year average returns are still above average suggests that markets could still fall more and still be within the normal historical pattern. Over the last decade, investors in the US stock market have overearned. They may still have more to give back.
