If you happen to listened to the consensus again in April, you in all probability thought the sky was falling.
Recession was coming. The market was toast. Time to cover.
However that’s not how issues labored out, and the year-end information tells the actual story. And…it’s a great reminder of why we don’t make portfolio choices based mostly on headlines or polls.
The Worst Begin Since 2020
By April eighth, 2025, issues had been shaping as much as be one of many worst begins to a yr in market historical past. We’re speaking 66 buying and selling days in, fourth worst begin ever, and the worst since 2020.
Earlier than that? You had to return to the Thirties.
The S&P 500 dropped 21% from February to April. That’s a bear market by definition.
And the recession predictions? They had been all over the place. In line with a ballot finished by Charlie Bilello again in April, about two-thirds of respondents thought we had been headed right into a recession. The betting markets agreed…67% odds of a US recession.
So what occurred?
The Massive Comeback
From the April lows, the market ripped 43% greater.
New all-time highs alongside the best way. One of many greatest comebacks in historical past.
And people recession odds? At present they sit at primarily zero.
Let that sink in. In eight months, we went from “67% probability of recession” to “what recession?”
This is the reason we are saying there aren’t any details concerning the future. Everyone seems to be guessing. The polls, the betting markets, the speaking heads on TV…all of them had been wanting on the identical information in April and drawing conclusions that turned out to be utterly mistaken.
Why It Felt Worse Than It Was
Right here’s the factor that stunned me.
If you happen to requested most buyers how risky 2025 felt, they’d in all probability say “very.” The tariff chaos within the spring, the AI bubble fears within the fall, the fixed information cycle…it felt like rather a lot.
However, the info tells a distinct story.
The S&P 500 had 29 days with a 1% or larger decline this yr. You understand what the common goes again to 1928?
Precisely 29. Proper on the nostril.
The VIX, which measures anticipated volatility, averaged 19.1 for the yr. The long-term historic common?
Yup, 19.5.
So by each goal measure, 2025 was primarily a totally regular, utterly common yr for volatility.
It simply didn’t really feel that approach as a result of our brains don’t course of threat rationally.
We keep in mind the scary elements but overlook how shortly issues recovered.
Two Corrections, Two Totally different Flavors
We had two pullbacks this yr:
The primary was the 21% bear market from February to April. That one bought all the eye.
The second was a 5.8% decline from October to November on AI bubble fears. Delicate by comparability. Most individuals in all probability don’t even keep in mind it.
Right here’s the damaged file half…we’re probably going to see corrections in 2026 too. The explanations might be completely different. Possibly it’s one thing we’re not even fascinated about proper now. However the sample is identical. Markets go down, typically rather a lot, and also you by no means know within the second how far they’ll fall.
The buyers who do effectively are those who plan for this prematurely, not those who react within the second.
A Couple of Shiny Spots to Finish the Yr
Gasoline costs hit $2.89 per gallon nationally. That’s the bottom in over 4 years. If you happen to drive, you’ve seen. Nevertheless it additionally feeds into the broader financial system…transportation prices, delivery, all of it.
And right here’s the one which issues most: wages have been rising quicker than inflation for 31 consecutive months now.
That’s actual buying energy.
If you happen to solely take note of the political information and press, it’s possible you’ll not really feel such as you agree with this, however individuals are truly getting forward as a substitute of simply treading water. For some time there, from 2021 to early 2023, inflation was consuming folks’s paychecks alive. That’s flipped. And it’s an enormous deal.
What It Means for 2026
I’m not going to sit down right here and make predictions. You know the way I really feel about that.
However I’ll say this: 2025 was a masterclass in why the consensus is commonly mistaken at precisely the mistaken time. When everybody was panicking in April, that was the time to remain the course. When everybody forgot about threat within the fall, we bought a fast reminder.
At Monument, our method doesn’t change based mostly on what the polls say or what the betting markets predict. We construct portfolios with the expectation that volatility will present up. We keep money reserves so our shoppers don’t should promote on the worst attainable second. And we observe our course of.
I’ll take this philosophy to the grave – should you depend on your portfolio for ANY revenue, having 12-18 months of money put aside is the very best and most cost-effective hedge towards market downturns any investor can have. Interval.
With markets at an all-time excessive, Jan 1st (provides you extra time to pay any taxes) is a good time to start out replenishing any money you spent out of your reserves over 2025.
2026 could have its personal challenges…there might be scary headlines, there might be corrections, and sooner or later, the consensus will in all probability be mistaken once more.
The query is whether or not you’ll be positioned to disregard them and presumably even make the most of selloffs.
Hold wanting ahead.
Dave
