As of the end of Monday, the S&P 500 (SNPINDEX: ^GSPC) was down by 4% to start 2025. But at one point, it was down over 15%. For now, investor concerns about a bear market have eased. However, it has still been a fairly volatile start to the year.
While the S&P 500 looks to be stabilizing, it has still been in negative territory in three of the first four months of the year. Is it a bad omen for market, and could it be a predictor that stocks are due for more of a decline in the months ahead?
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Image source: Getty Images.
This has now happened five times in 25 years
A slow start to the year hasn’t been all that uncommon for the S&P 500. The table below captures the previous four times the index has been negative in three of the first four months of the year, along with its returns over that time frame and over the entire year.
|
Year |
First 4 Months |
Full-Year Return |
|---|---|---|
|
2022 |
(13.3%) |
(19.4%) |
|
2008 |
(5.6%) |
(38.5%) |
|
2005 |
(4.5%) |
3% |
|
2002 |
(6.2%) |
(23.4%) |
Data source: Google Finance. Calculations by author.
The last time it was down in three of the first four months of the year was back in 2022. That year, the index crashed by 19% due to rising interest rates and inflation-related concerns. But prior to that, you have to go back to the financial crisis in 2008 for the last time this happened. And that year, the S&P would end up declining nearly 39%.
This year, through the first four months, the S&P 500 was down about 5.3%. What I find noteworthy is that while 2022 had the largest four-month decline listed in the table above, the largest market sell-off took place in 2008 when the index was down by a more modest rate of 5.6% after just four months. There’s unfortunately no way to reliably predict future market behavior based on the past four months.
Every year is different, and trying to guess where the S&P 500 will go and trying to time the market can be a risky and costly strategy.
When in doubt, go with value stocks
If you’re not sure what to do right now, you’re not alone. But that doesn’t mean you need to sell off all your stocks and go into cash or load up on gold bars. There are ways to reduce your risk in the market to ensure that even if there is more of a decline to come this year, your portfolio can remain relatively safe. Best of all, buying while valuations are lower can set you up for better returns in the long run.
Turning to value stocks can be an effective way to minimize risk. The Vanguard Value Index Fund ETF (NYSEMKT: VTV) is an exchange-traded fund (ETF) that can give you a position in top stocks that trade at reasonable valuations. The ETF averages a price-to-earnings multiple of just over 19, which is lower than the S&P 500 average of nearly 23.
The fund is skewed toward financial, healthcare, and industrial sectors, with stocks from those areas accounting for around 54% of its total weight. Berkshire Hathaway is the largest holding at 3.7% of the ETF’s weight, followed by JPMorgan Chase at 3.2%, and ExxonMobil at 2.4%.
VTV performance against the S&P 500 data by YCharts.
The ETF is down around 1% this year but it has still done better than the S&P 500, and it may be less vulnerable to a further decline given its focus on value and modestly priced stocks. It can also be a solid income-generating investment to hang on to as it yields 2.4%. It also has a low expense ratio of 0.04%.
For investors looking for safety amid market uncertainty, this is the type of investment that can make a lot of sense both for the short term and over the long haul.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, JPMorgan Chase, and Vanguard Index Funds-Vanguard Value ETF. The Motley Fool has a disclosure policy.
