Many investors viewed January 2014 as a pretty scary month. Over a period of just 12 trading days (1/15-2/3), the S&P 500 lost -5.76%. This spurred conversations online and in the media about the end of a long bull market run and even the possibility of a bubble. However, since the end of that tough stretch, the market has responded strongly and is now less than 1.5% off its all time high.
So what happened in January to cause such a response? Was it a concern about the health of emerging markets that caused such a scare, or perhaps the threat of rising interest rates? Did the uncertainty of having a new Fed chairman cause a pullback in the market, or maybe the concern of a terrorist attack in Sochi during the Olympics? These are all clearly issues that will obtain a good amount of short-term attention, but I’d contend that none of them were the root cause of the market decline.
History illustrates time and again that market volatility leads to memory problems for many investors. Check out this chart (click to zoom in) itemizing all market corrections of 5% or more since the bull market began: