By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panelists generally agreed that while the S&P 500 has historically recovered from drawdowns, the current environment with high valuations, inflation, and regime shifts poses unique challenges. They cautioned against relying solely on 'buy and hold' strategies and suggested reassessing risk and considering factor tilts or rebalancing.
Risk: A synchronized drawdown across all factors due to earnings misses or a macro-driven sell-off, which could compress multiples and lead to prolonged recovery periods.
Opportunity: Opportunities to tilt toward quality growth leaders with durable pricing power and rebalance toward value when rate risk expectancies rise.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
There are multiple geopolitical conflicts playing out around the world.
Inflation, helped along by rising energy prices, could tip the global economy into a recession.
Patient investors should stick to their long-term plans regardless of what happens with stocks.
The world is in a highly uncertain state today. And still the S&P 500 index (SNPINDEX: ^GSPC) is hovering near all-time highs. But volatility from day to day has been high, suggesting that often mercurial investors are worried about the future. That's reasonable in the short term, but the long term is a different story. If you are a patient investor, history suggests you'll be just fine if you ignore the emotional swings that are driving stock prices today.
Here's what you need to know about Wall Street history to keep you focused on your own, personal long-term investment plan.
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Investors can easily buy the S&P 500 index through exchange-traded funds such as SPDR S&P 500 ETF (NYSEMKT: SPY) or Vanguard S&P 500 ETF (NYSEMKT: VOO). The S&P 500 index is the most common investment for those looking to simply track the market. Long-term investors like Warren Buffett, the former CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), often suggest that buying the S&P 500 index is the best option for smaller investors. It lets you own stocks with little effort.
The focus from there can be on two fronts: Saving as much money as you can and sticking it out through the market's inevitable ups and downs. The first part of that can usually be set on autopilot, either through your employer's retirement plan or through automatic deposits to your brokerage account. The second piece could actually be the hardest, because emotions are so important to long-term investment success and change so quickly on Wall Street. Buffett, whose investment results were so strong he earned the nickname the Oracle of Omaha, has explained that temperament is even more important than intelligence when it comes to investing.
While the graph above highlights Warren Buffett's impressive investment results at Berkshire Hathaway, there's another, more subtle takeaway. There are three gray bars on the graph that highlight recessions. There have also been several bear markets over the period the graph covers. Berkshire Hathaway's stock price has continued to head higher over time despite those headwinds, and so, too, has the S&P 500 index.
That trend goes much further back if you extend the S&P 500 graph. The chart below, for the S&P 500 index alone, goes back to the 1950s. There have been many recessions and bear markets since the 1950s, and not a single one has permanently derailed the market's long, upward climb.
Yes, there are economic and stock market concerns today. Multiple geopolitical conflicts, high energy prices, recession fears, and a still lofty valuation for the S&P 500 are all legitimate sources of investor fear. But investors always have to deal with uncertainty and fear; it is part of the investment process.
History shows that deciding on a long-term plan (even one as simple as buying the S&P 500 index and holding it "forever") and sticking to it is likely to lead to a good investment outcome. In other words, patient investors shouldn't read too much into the market's late May volatility.
Markets are volatile and always will be. You shouldn't read into that volatility today or, frankly, any day. For most investors, the best outcome will likely come from finding an investment approach that works for you and sticking to it through the market's inevitable good times and bad times. What is happening in May (or any month) shouldn't sideline you from patiently building wealth over the long term.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Lofty valuations plus deglobalization pressures imply materially lower forward returns for the S&P 500 than the article's historical framing suggests."
The article correctly notes that S&P 500 drawdowns have always been temporary, but it underweights today's starting point: forward P/E near 21x amid 4%+ core inflation and energy-driven supply shocks. Historical recoveries assumed lower debt levels and globalization tailwinds that are now reversing. Patient indexing remains viable, yet expected real returns over the next decade could compress toward 4-5% annualized rather than the 7-8% long-term average if margins mean-revert.
Every prior cycle of geopolitical stress and inflation fears produced the same warnings, yet buying and holding SPY or VOO through 1970s stagflation or 2008 still delivered positive long-term results.
"The article's 70-year track record is real but masks the critical variable: entry valuation and the subsequent decade's earnings growth determine returns far more than 'patience' alone."
This article is essentially a marketing wrapper around a tautology: 'buy and hold works if you don't sell.' True, but incomplete. The S&P 500 has recovered from every drawdown since the 1950s—but that's survivorship bias. The article ignores that real returns depend heavily on entry valuation and the subsequent 10-year earnings growth rate. At current forward P/E of ~21x (vs. 15-17x historical median), the margin of safety is thin. A genuine recession could compress multiples AND earnings simultaneously, requiring 15+ years to recover to today's nominal levels, not just 'stick it out.' The geopolitical and energy risks mentioned are real but treated as background noise rather than priced-in tail risks.
If we're truly in a 'new paradigm' of AI-driven productivity and lower long-term rates, today's 21x multiple is justified and the article's historical comparisons are anchored to an obsolete regime. Waiting for a 'better entry' could cost far more in opportunity cost than buying now.
"Historical resilience of the S&P 500 does not account for the specific risk of multiple compression in a high-interest-rate, high-valuation environment."
The article relies on the 'time-in-the-market' heuristic, which is statistically sound but ignores current regime shifts. While the S&P 500 (SPY) historically recovers from volatility, we are currently navigating a high-interest-rate environment that differs significantly from the post-2008 era of quantitative easing. Valuations are stretched, with the S&P 500 trading at a forward P/E of roughly 21x, well above its 10-year average. Relying on historical resilience ignores the risk of multiple compression if earnings growth fails to justify these premiums. 'Staying the course' is a valid strategy for the long-term, but it assumes the index composition remains robust against the potential for a prolonged productivity plateau or stagflationary shock.
History shows that market timing is notoriously difficult, and the 'cost' of being out of the market during a recovery often outweighs the capital preservation benefits of avoiding a temporary drawdown.
"Volatility in May should prompt a reassessment of risk and a tactical tilt toward high-quality, pricing-power names rather than blind buy-and-hold."
While the piece correctly notes noise is permanent in markets, its strongest blind spot is underestimating regime risk. May volatility could be signaling a shift in macro conditions—sticky inflation, higher-for-longer rates, and AI-driven capex cycles that may reroute earnings power away from broad-market indices. The article treats drawdowns as mere noise, yet a sustained earnings deceleration or tighter financial conditions could compress multiples faster than expected. Its focus on Buffett’s temperament and passive SPY investing misses opportunities to tilt toward quality growth leaders with durable pricing power and to rebalance toward value when rate risk expectancies rise. In short, don’t dismiss volatility; use it to reassess risk.
Volatility might be a signal of regime shift, not noise. If earnings slow and rates stay elevated, the 'buy and hold forever' thesis could underperform.
"Tech concentration alters S&P recovery paths from historical patterns."
Claude's 15-year recovery scenario underweights how S&P 500's 30%+ tech concentration changes drawdown mechanics versus prior cycles. A compression in AI names could trigger rotation into energy and value without broad earnings collapse, shortening nominal recovery for non-mega-cap segments. This concentration beta, absent from historical comparisons, raises the odds that factor tilts outperform pure indexing even if overall multiples stay elevated.
"Tech concentration doesn't enable faster recovery via rotation—it amplifies drawdown risk if earnings decelerate broadly."
Grok's rotation thesis assumes factor tilts work *during* drawdowns, but tech's 30%+ weight means a 20-30% correction in mega-cap AI names (NVDA, MSFT, TSLA) likely drags the entire index down faster than value can rotate in. Energy and financials benefit from rate volatility, not from tech weakness alone. The real risk: synchronized drawdown across all factors if earnings miss, not a clean sector swap. Rotation only works if the selling is sector-specific, not macro-driven.
"Institutionalized passive inflows create a valuation floor that prevents the classic mean-reversion of multiples, potentially leading to a prolonged period of decoupled price and earnings."
Claude is right about the risk of a synchronized drawdown, but misses the liquidity aspect. With passive inflows (401k, ETFs) remaining robust, the 'buy the dip' reflex is now institutionalized. Even if earnings miss, index-linked buying creates a floor that historical cycles lacked. The real risk isn't a 15-year recovery, but a 'zombie' market where valuations stay elevated due to persistent flows despite stagnant underlying earnings growth, effectively decoupling price from fundamentals for years.
"In a macro-driven, synchronized earnings/macro shock, rotation into value may fail as broad multiple compression hits across most groups, not just tech."
Grok, your mega-cap concentration point helps explain why stocks can fall fast, but it assumes a clean sector rotation under stress. In a macro-driven drawdown with higher rates and synchronized earnings misses, multiples likely compress across most groups, not just tech. Energy/value leadership can stall as cash flows get repriced, and the supposed floor from flows may erode if liquidity worsens. Rotation alone isn’t a safety net in a broad macro shock.
The panelists generally agreed that while the S&P 500 has historically recovered from drawdowns, the current environment with high valuations, inflation, and regime shifts poses unique challenges. They cautioned against relying solely on 'buy and hold' strategies and suggested reassessing risk and considering factor tilts or rebalancing.
Opportunities to tilt toward quality growth leaders with durable pricing power and rebalance toward value when rate risk expectancies rise.
A synchronized drawdown across all factors due to earnings misses or a macro-driven sell-off, which could compress multiples and lead to prolonged recovery periods.