So far, 2014 has been a volatile year for the stock market. The S&P 500 has gone from its all-time high of 1,850 on January 15 to a low of 1,737 on Wednesday. This is a brutal 6.1% intra-year decline. For the year, the S&P 500 is no down 5.2%. However, these big intra-year drops are very typical of the markets.
Check out this chart from JP Morgan Funds’ David Kelly. According to Kelly’s research, the average annual intra-year drop since 1980 is a whopping 14.4%. This makes this year’s sell-off look minuscule. More importantly, annual returns during these years have been positive 26 out of 34 times. Yes, the recent volatility hurts. But it’s no reason to freak out.
2013 was a really terrible year for commodities, as flagging demand worldwide ate into prices. Just four major commodities – natural gas, oil, palladium and, barely, zinc saw year-over-year price gains, according to the “commodities quilt” below from U.S. Funds. Growth in the top performer, natgas, which climbed 33%, diverged 66% from the worst performer, corn, which fell 23%.
That may seem extreme, but it’s been worse: in 2006, the disparity was almost 200 percent between winning nickel and losing natural gas. It’s also importants to recognize that annual returns for each commodity can be quite volatile. That’s why the pattern of colors in the quilt is so chaotic. “The price movement of commodities is historically both seasonal and cyclical,” wrote the folks at U.S. Funds. “That’s why when investing in natural resources, we believe it is important for your portfolio to hold a diversified basket of commodities and to be actively managed by professionals who understand these specialized assets and the global trends impacting them.”