3 Things 4-14-25

 Thing One

What 10 Days Could Cost You

In volatile times like the ones, we are currently living through, some people make what seems to them to be a completely rational decision – they get out of the market.  The problem with getting out though is getting back in as the same anxiety that forces people to the sidelines often makes them reluctant to get reinvested.  And, as multiple studies have found, sitting on the sidelines for timing purposes can be quite costly.

In fact, missing just the best 10 days in the stock market each year can significantly erode long-term investment returns. Historical data, such as from the S&P 500, shows that a substantial portion of annual gains (over 50% in some stretches of time) frequently comes from just a handful of days. For example, a study by J.P. Morgan Asset Management found that from 1999 to 2019, missing the 10 best days in each year reduced an investor’s annualized return from 6.06% to just 2.44%. This stark difference underscores how critical these high-performing days are to overall portfolio growth. Staying invested consistently, rather than attempting to time the market, ensures exposure to these unpredictable surges.

The danger lies in the unpredictability of these best days. They often occur during periods of volatility or shortly after significant market declines, when fear might tempt investors to pull out. For instance, some of the best trading days historically have followed sharp sell-offs, as markets rebound unexpectedly. An investor sitting on the sidelines, waiting for clearer signals, risks missing these sharp recoveries. Data from Bank of America illustrates that from 1930 to 2020, seven of the 10 best days in each decade often came within two weeks of the worst days. Timing the market accurately enough to avoid losses while capturing gains is nearly impossible, even for professionals.

Compounding exacerbates the impact of missing these key days over time. A hypothetical $10,000 investment in the S&P 500 from 1980 to 2020 would have grown to over $700,000 if fully invested. However, missing just the 10 best days each year could slash that to under $100,000. This gap reflects not only the immediate loss of gains but also the forfeited opportunity for those gains to compound over decades. The longer the investment horizon, the more devastating the effect, as even small differences in annual returns balloon into massive disparities.

The uncomfortable truth is that the 10 best days are often driven by unexpected policy shifts or sentiment changes that defy logic so trying to outsmart the market typically leads to worse outcomes than a disciplined, long-term approach. Given that conundrum, the lesson is clear: staying invested through uncertainty, while psychologically challenging, is statistically the safer bet for capturing the market’s most impactful days. 

Thing Two

Why The 10-Year Yield Matters

U.S. Treasury Secretary Scott Bessent recently described himself as having one job – to keep the 10-year treasury yield from breaking through 5% in order to keep “Trumponomics from breaking down, equities from rolling over, and other rate sensitive sectors from breaking lower.

Kiplingers.com offered a primer on the 10-year yield that helps clarify the statement above.  See an excerpt below:

“…The 10-year Treasury note yield is what the U.S. government pays to borrow money for a decade. It has long been recognized as a benchmark for the global financial system.

It's the starting point for corporate bond pricing, and it's the basis for the 30-year mortgage and other critical market-driven consumer borrowing costs.

Backed by the full faith and credit of the United States government, the 10-year U.S. Treasury note yield also represents a risk-free rate of return.

When the yield on the 10-year starts to creep toward, say, 5%, investors start to think hard about how nice it would be not to think so hard about generating a reasonable rate of return.

The 10-year Treasury yield also aggregates things like economic growth and inflation. That makes it a pretty good full-service proxy.

There are many ways to try to track this particular president, including traditional public opinion polls, sentiment indicators, economic data and equity indexes – and that's in addition to multiple actual market prices.

But the old methods are sometimes the best, especially when markets get noisy.

And so it is with the 10-year U.S. Treasury yield, the most important economic indicator in the world right now…”

There you have it.  And if you weren’t already doing so, take a peek at the 10-year treasury yield every now and then.

Thing Three

Just A Thought 

"From ten acorns a forest can rise." - Anonymous