Why the Stock Market's Pullback Feels More Painful Than It Seems

The stock market's recent pullback from record highs has left investors feeling the pain, but is the market's performance really as bad as it seems? Let's dive into the data and explore why the current market conditions might be more bearable than they appear.



First, let's put the recent market decline into perspective. As of early November 2021, the S&P 500 had fallen around 5.2% from its September peak. While this decline is significant, it is still within the range of a typical market pullback, which is defined as a drop of 5% to 10% from a recent high. In fact, Guggenheim Partners reports that there have been more than 74 market pullbacks since the end of World War II, with an average loss of 7%.

Moreover, market pullbacks are often short-lived. According to Guggenheim Partners, the average market pullback lasts around a month and takes another month to retrace the losses. In other words, the market tends to bounce back relatively quickly after a pullback.

Now, let's consider the factors contributing to the perceived pain of the current market pullback. One major factor is the significant decline in technology stocks, which have led the market's gains in recent years. The "Magnificent 7" group of technology stocks, including Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla, has gained an average of 77% in 2021. However, these stocks have also led the declines in the recent market pullback, causing investors to feel the pain more acutely.



Another factor contributing to the perceived pain is investor psychology and sentiment. When the market experiences a pullback, investors may become anxious or fearful, leading them to make impulsive decisions that can amplify the market's decline. For instance, during the market pullback in September 2021, the S&P 500 sank 5.2% amid congressional wrangling over the national debt ceiling. This decline was driven in part by investor anxiety and uncertainty about the outcome of the negotiations.

However, it's essential to remember that market pullbacks are a normal and healthy part of the market cycle. They provide opportunities for investors to buy high-quality stocks at discounted prices. In fact, all 28 corrections over the past 50 years have been more than completely erased by a subsequent bull market rally.



In conclusion, while the stock market's recent pullback may feel more painful than it seems, it is essential to keep the decline in perspective. Market pullbacks are a normal and short-lived phenomenon that often present buying opportunities for investors. By staying focused on the long run and not getting caught up in short-term market movements, investors can navigate the market's ups and downs more effectively.

As an investor, it's crucial to maintain a balanced perspective and avoid making impulsive decisions based on short-term market fluctuations. By staying informed and maintaining a diversified portfolio, investors can weather the market's storms and emerge stronger in the long run.