After the initial weakness to start the year, stocks recouped all of their January losses in February. The S&P 500 Index, which lost -3.5% in January, gained 4.6% in February. Foreign stocks, as measured by the MSCI EAFE Index, followed their -4.0% decline last month with a 5.6% increase this month.
In last month’s analysis, we maintained that the correction in global stocks would be short-lived. That appears to be the case with both U.S. and foreign stocks bottoming on February 3. In total the S&P 500 corrected by -5.8% while the MSCI EAFE corrected by -6.6%. The S&P’s -5.8% pullback exactly matched its worst correction of all of 2013, which shows how mild a year 2013 was in terms of volatility.
As a stock investor, you need to be prepared for corrections of at least 5% in any given year. Since 1960, there have been only three calendar years in which the S&P 500 did not pull back by at least 5%. So history suggests a 95% chance of a pullback of at least 5% in stocks in any given year. And in 29 of the last 55 calendar years—or more than half the time—there has been more than one correction of at least 5% within the calendar year. The lesson here is that these types of pullbacks are simply par for the course when investing in stocks.
Please watch the video below for our complete Market Analysis.