Midterm Volatility Is Right on Schedule
It would be easy to look at this week’s headlines and think things are getting worse.
“Magnificent Seven” tech stocks are down sharply for the year.
Tariff uncertainty is back.
Private credit funds are showing cracks.
Bitcoin has plunged almost 50% from its record high.
AI disruption fears are rattling entire industries.
But for investors who remain broadly diversified, things haven’t been bad. International stocks are up. Bonds are holding steady. Value stocks are outperforming growth, and small-cap stocks are outperforming large. Diversification is working exactly as designed.
But things could get worse, and as I mentioned in last week’s note, that would be completely normal. Scary headlines and market volatility happen every year. What I’ll add this week (and what I discussed during the seminar) is that 2026 is a midterm election year, which has historically turned up the volume on both scariness and volatility.
The good news, as noted in the chart above, despite averaging an intra-year drawdown of 17.5% in midterm years since 1950, the S&P 500 still delivered positive full-year average returns.
A Pattern Worth Remembering
Last year, those who sold out of fear (or sold because they had limit orders in place) on April 8th could have missed just one trading day and underperformed a buy-and-hold investor by nearly 11%
That is how markets work.
I suspect we will see more scariness in the days, weeks, and months ahead, and I can’t promise this time will be the same as anything we’ve seen in the past. But I can tell you that successful investing has never been about predicting which crisis will pass and which one won’t. It’s about building a portfolio tailored to your goals and positioning yourself to weather whatever storm arrives.
Personal Note:
My wife is fostering two new puppies.
The little one is missing a front-right paw, and the front-left looks more like a crab claw. But she gets around just fine. If anyone is in the market for a new puppy, they are both available for adoption through Jenni’s Rescue Ranch.
