-
The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.
Staying the Course: Resisting Temptation in Volatile 2025 Markets
2 min readMissing the Five Strongest Days in a Market Rally Can Ruin Returns
Past performance is no guarantee of future results.
*Annualized trailing three-year daily returns of the S&P 500 and MSCI EAFE and trailing three-year daily returns where the best five days are excluded from each rolling three-year period and are calculated every business day from January 2008 (trailing three years goes back to January 2005) through end of June 2025. The average of these returns is then calculated to give the results in the chart. MSCI EAFE returns are shown in US-dollar terms.
As of June 30, 2025
Source: FactSet, MSCI, S&P and AllianceBernstein (AB)
Volatility often evokes emotional responses from investors. Two big sell-offs in early 2025 reminded us why it’s important to fight those responses and stay invested through downturns.
It’s perfectly human to feel fearful when the value of your investments is falling fast. However, trying to time the market can be counterproductive, as investors may forfeit strong gains that are common after volatility peaks.
Calculating the Cost of Market Timing
That timeless lesson was reinforced this year (Display). First, global stocks fell in the first quarter after a Chinese start-up's artificial intelligence breakthrough raised concern about the technology mega-caps. Then, in early April, equities tumbled in response to President Trump’s sweeping tariff plans, followed by a rapid recovery after a 90-day pause was announced a week later.
By quarter-end, equities touched record highs. However, when excluding the five best days of the recovery, returns were dramatically impaired. For the S&P 500, missing the five best days in the first half of 2025 translated to a 12.1% loss compared with a 6.2% gain for the full period. For non-US stocks, the MSCI EAFE Index returned 2.0% in US-dollar terms, excluding the five best days, versus a 19.4% gain for those who stayed invested. These trends echo long-term patterns observed over the last 20 years in equity markets, when missing the five best days over each rolling three-year period significantly weakened returns.
How to Resist the Fear Factor
Despite the rebound, headline risks remain. Trade wars, macroeconomic challenges and geopolitical risks could provoke more market volatility.
So how can investors combat the natural impulse to sell in turbulent markets? Defensive equities can help. In particular, we believe an active strategy that aims to curb losses in down markets and capture most (but not all) gains in up markets can deliver a smoother pattern of returns over time. Targeting select stocks that offer quality, stability and attractive prices (what we call “QSP”) can help a defensive allocation get a better balance of returns through market cycles. And for investors, understanding a portfolio’s philosophy and approach—and the pattern of returns that it aims to deliver—is especially important in a world of slower growth and market turmoil.
In our view, a defensive portfolio that eases the pain of losses in falling markets can help investors pass the biggest test when market conditions get rough. By resisting the temptation to sell at the wrong time, investors will dramatically improve the chances of achieving their long-term goals.
-
MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein.
The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
-
Investment involves risk. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This article is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor's personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer of solicitation for the purchase or sale of, any financial instrument, product or service sponsored by AllianceBernstein or its affiliates. This presentation is issued by AllianceBernstein Hong Kong Limited (聯博香港有限公司) and has not been reviewed by the Securities and Futures Commission.