This Morning's Selloff Is a Gift

This morning's selloff is a gift.

The average intra-year drawdown of the S&P 500 is negative 14 percent. That means on average, every single year, the market falls 14 percent from its peak at some point before recovering and closing higher. 

Like clockwork. So don’t get bent up about it or view it as a warning sign. It’s the normal price of admission.

The Nasdaq hit that range during the pullback we just went through. 

Alot of people sold…and then they chased the move back up.

Feeling they missed the move, they got agressive buying calls into earnings season. However, with today’s sell-off in tech, they are second-guessing themselves again. 

Just take a deep breath and stop being so EMO. 

What we know is a single report dropped at 9 pm last night saying OpenAI missed its own revenue targets. 

So, everything connected to OpenAI is lower today because of it. 

That is sentiment working exactly as it always does in the short term. But here is the number worth knowing. The correlation between S&P 500 returns and earnings growth over a 30-year period is 0.98, where 1.0 would be a perfect relationship. 

In plain English, over long periods the market follows earnings almost exactly. A news story from last night does not move the earnings trajectory of Microsoft or Alphabet or Amazon. It moves the mood for a morning.

I have a word for the stuff people panic over in moments like this. 

Funnymentals. 

Earnings misses, cash flow concerns, revenue guidance cuts. Those numbers matter, but not at the level of intensity people treat them.

 The fundamentals that actually determine where you end up over time are the ones nobody writes on their wall. So write these on your wall.

6.9 percent is the real annualized return of stocks over 200 years, not including dividends. 

The rule of 72 shows you what that means in practice. Divide 72 by your annual return rate and you get the number of years it takes to double your money. 

At 8 percent that is nine years. At 12 percent that is six years. A few doubles in a lifetime genuinely changes your financial picture. Most people never get there because they exit the market on mornings like this one.

40 percent of your total long-term stock returns come from reinvested dividends. Spend them instead and you eliminate nearly half your compounding power before it has a chance to work.

2 percent is the average annual inflation rate. 

Over 50 years at that rate, 73 percent of your cash's purchasing power disappears. There is no way to cut expenses enough to outrun that. Growing your portfolio is the only real answer, which is the whole reason you are here.

10 is the number of best trading days per year that matter most. Miss them across 20 years and you lose half your returns. 

The majority of those days happened during bear markets and moments of maximum fear, not during the easy periods when everyone was comfortable staying invested.

100 percent is the percentage of every 20-year rolling period in 150 years of market history that delivered positive returns. Every single one across a century and a half of data.

The March 31st low is a serious candidate for the midterm election year bottom. 

When that pattern plays out, the historical average return over the following 12 months is 36.4 percent, which is widely considered the most reliable seasonal pattern in markets. 

Patientce pays.

The numbers support staying in the game right now, not getting out of it.

40 percent of the S&P 500 reports tomorrow. 

Those results tell you more about where this market is going than a New York Times hit piece. 

Mac and I are going live at 4 pm ET to cover the biggest earnings day of the year in real time. Microsoft, Alphabet, Amazon, and Meta all report after the close alongside the FOMC decision. Join us.

RSVP your spot and join us. 

– Gianni Di Poce