Weathering Market Storms: A Long-Term Perspective on Volatility Since 2020 |
|
|
Financial markets have been on a roller coaster ride since March 2020, with periods of extreme volatility challenging even the most seasoned investors. From the pandemic-induced crash of 2020 to the recent tariff-triggered selloff in April 2025, market swings have tested investor resolve while providing powerful lessons about the importance of maintaining a disciplined, long-term investment approach.
The Pandemic Plunge and Recovery When COVID-19 sent global markets into freefall in early 2020, we witnessed the fastest correction in market history. Within just six days in late February, major indices entered correction territory as pandemic fears gripped investors worldwide. By March, the selloff had intensified, with the Dow Jones Industrial Average posting multiple 1,000-point daily losses. |
What followed, however, was equally remarkable. Despite dire economic predictions, markets staged a dramatic comeback, with major indices recovering to their February peaks by September 2020. By year-end, both the S&P 500 and Dow Jones Industrial Average had closed at all-time highs. Investors who maintained their positions through this tumultuous period were rewarded, while those who sold near the bottom missed the historic recovery.
Recent Volatility: The 2025 Shock
Just as markets had found a more stable footing, April 2025 brought fresh turbulence. Following the announcement of sweeping new tariff policies on April 2, global markets experienced their most significant decline since the pandemic. Over just two trading days (April 3-4), North American markets experienced devastating losses, with the Dow Jones shedding over 4,000 points (9.48%), the S&P 500 losing 10%, and the Nasdaq plunging 11%.
This rapid decline wiped out approximately $6.6 trillion in market value – the largest two-day loss in history. The VIX volatility index, often called "Wall Street's fear gauge," spiked to 45.31 points, reaching levels not seen since the 2020 crash. While a policy reversal on April 9 triggered a substantial rally, with the S&P 500 gaining nearly 10% in a single day, markets remain below their pre-April levels.
What Volatility Tells Us
The CBOE Volatility Index (VIX) provides a numerical picture of market turbulence over the past five years. During the height of pandemic fears in March 2020, the VIX reached an extraordinary 82.69. After gradually settling to more moderate levels, it spiked again to over 52 during this year's April selloff. Currently sitting at 18.14 (as of May 19, 2025), volatility has subsided but remains elevated compared to calmer periods.
For Canadian investors, these dramatic swings offer important lessons about market behaviour:
1. Market timing consistently proves futile – neither the severity of crashes nor the speed of recoveries can be reliably predicted
2. Emotional reactions typically lead to poor outcomes
3. Diversification remains essential for weathering market storms
The Value of Staying the Course
Looking at historical data reveals that market volatility is nothing new. Since 1990, the VIX has seen numerous spikes – reaching 80.86 during the 2008 financial crisis and 37.32 amid 2018's market turbulence. Yet through each period of heightened volatility, markets have eventually stabilized and resumed their long-term upward trajectory.
For Canadian investors specifically, our economic ties to the United States mean that American market volatility inevitably affects domestic investments. However, this connection also means that the resilience of the North American economy typically supports eventual market recoveries.
The most reliable approach through these fluctuations remains unchanged: establish a sound investment strategy aligned with your personal goals, diversify appropriately, and maintain discipline when markets become turbulent.
Your Financial Plan as an Anchor
Your financial plan serves as an anchor during market storms. Rather than making reactive changes based on headlines, consider using volatile periods as opportunities to:
- Review your investment strategy to confirm it still aligns with your long-term objectives
- Rebalance your portfolio if market movements have significantly altered your asset allocation
- Discuss any concerns with your financial advisor, who can provide perspective and recommendations tailored to your situation
Remember that market volatility, while uncomfortable, is the price investors pay for the long-term growth potential of equity investments. Historical data consistently shows that investors who maintain a disciplined approach through market fluctuations fare better than those who attempt to time the market.
As we navigate the remainder of 2025 and beyond, uncertainty will persist. But by focusing on your long-term financial goals rather than short-term market movements, you position yourself to benefit from the market recovery that has followed every significant decline throughout history.
Recent Volatility: The 2025 Shock
Just as markets had found a more stable footing, April 2025 brought fresh turbulence. Following the announcement of sweeping new tariff policies on April 2, global markets experienced their most significant decline since the pandemic. Over just two trading days (April 3-4), North American markets experienced devastating losses, with the Dow Jones shedding over 4,000 points (9.48%), the S&P 500 losing 10%, and the Nasdaq plunging 11%.
This rapid decline wiped out approximately $6.6 trillion in market value – the largest two-day loss in history. The VIX volatility index, often called "Wall Street's fear gauge," spiked to 45.31 points, reaching levels not seen since the 2020 crash. While a policy reversal on April 9 triggered a substantial rally, with the S&P 500 gaining nearly 10% in a single day, markets remain below their pre-April levels.
What Volatility Tells Us
The CBOE Volatility Index (VIX) provides a numerical picture of market turbulence over the past five years. During the height of pandemic fears in March 2020, the VIX reached an extraordinary 82.69. After gradually settling to more moderate levels, it spiked again to over 52 during this year's April selloff. Currently sitting at 18.14 (as of May 19, 2025), volatility has subsided but remains elevated compared to calmer periods.
For Canadian investors, these dramatic swings offer important lessons about market behaviour:
1. Market timing consistently proves futile – neither the severity of crashes nor the speed of recoveries can be reliably predicted
2. Emotional reactions typically lead to poor outcomes
3. Diversification remains essential for weathering market storms
The Value of Staying the Course
Looking at historical data reveals that market volatility is nothing new. Since 1990, the VIX has seen numerous spikes – reaching 80.86 during the 2008 financial crisis and 37.32 amid 2018's market turbulence. Yet through each period of heightened volatility, markets have eventually stabilized and resumed their long-term upward trajectory.
For Canadian investors specifically, our economic ties to the United States mean that American market volatility inevitably affects domestic investments. However, this connection also means that the resilience of the North American economy typically supports eventual market recoveries.
The most reliable approach through these fluctuations remains unchanged: establish a sound investment strategy aligned with your personal goals, diversify appropriately, and maintain discipline when markets become turbulent.
Your Financial Plan as an Anchor
Your financial plan serves as an anchor during market storms. Rather than making reactive changes based on headlines, consider using volatile periods as opportunities to:
- Review your investment strategy to confirm it still aligns with your long-term objectives
- Rebalance your portfolio if market movements have significantly altered your asset allocation
- Discuss any concerns with your financial advisor, who can provide perspective and recommendations tailored to your situation
Remember that market volatility, while uncomfortable, is the price investors pay for the long-term growth potential of equity investments. Historical data consistently shows that investors who maintain a disciplined approach through market fluctuations fare better than those who attempt to time the market.
As we navigate the remainder of 2025 and beyond, uncertainty will persist. But by focusing on your long-term financial goals rather than short-term market movements, you position yourself to benefit from the market recovery that has followed every significant decline throughout history.
