Chart of the Week

Volatility has resurged recently as markets continue to grapple with evolving trade policy, the potential for an economic slowdown, the timing and amount of Federal Reserve rate cuts, and the lingering impacts of still-elevated inflation and interest rates. As uncertainty rises, investors may find themselves considering selling into volatile markets.

However, as shown in the chart above, our research suggests that missing a handful of the best days over longer time periods drastically reduces the average annual return an investor could gain by simply holding on to their equity investments during market sell-offs. Based on this study, equities accumulated most of their gains over just a few trading days, and the best and worst trading days have historically often occurred in a very tight time frame.

We believe that staying fully invested in equity markets over a full market cycle is more beneficial than selling into volatile markets and attempting to avoid the worst-performing days. We also suggest rebalancing — buying asset classes that have fallen below a portfolio’s long-term allocations and selling those that are higher than long-term allocations — during periods of market volatility.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.

S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.

An index is unmanaged and not available for direct investment.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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