What Market Rallies and Sell-Offs Really Mean for Long-Term Investors

Cuts through short-term noise

By Laura Fitzgerald

If you check your portfolio every day, you're probably exhausted. The market goes up, the market goes down, headlines scream about rallies and crashes, and you're left wondering: does any of this actually matter for my retirement account?

Here's the truth that cuts through all the noise: for long-term investors, very little of what happens day-to-day or even month-to-month matters nearly as much as you think.

The Historical Reality Check

Looking at 152 years of market data reveals something crucial: roughly two in three years have seen positive returns for the S&P 500. The most common range? Between 10% and 20% annual gains. Analysts are forecasting an average return of 12% for 2026, citing continued earnings growth and resilient consumer demand right in that historical sweet spot.

But here's what those same 152 years also show: market corrections are completely normal. Since 1946, there have been 84 market declines between 5% and 10%. On average, the market recovers from these in just one month. There have been 29 declines of 10% to 20%, with an average recovery time of four months.

Translation: if you're a long-term investor and you panic-sell during corrections, you're almost guaranteed to miss the recovery. Studies by Dalbar comparing S&P 500 returns versus average investor returns consistently show that people who tried to time the market underperformed those who simply stayed invested.

Why This Year Might Feel Different

Markets are entering 2026 after three consecutive years of double-digit returns 86% total return for the S&P 500 over that period. This has left valuations stretched. The S&P 500's forward earnings yield is now nearly equal to the 10-year Treasury yield, leaving an equity risk premium of just 0.02%, among the lowest on record.

There's also a historical pattern worth noting: the S&P 500 has suffered an average 18% intra-year drawdown during midterm election years since the index was created in 1957. That doesn't mean the year ends badly, it means at some point during the year, markets typically fall 18% from their peak before potentially recovering.

Goldman Sachs chief Asia-Pacific equity strategist Timothy Moe pointed out that markets typically experience a 10% correction every eight to nine months, and it's been over nine months without one. The longer markets go without a meaningful pullback, the more vulnerable they become to sudden sentiment shifts.

What Actually Matters for Your Portfolio

For long-term investors anyone with a timeline of 10 years or more the day-to-day volatility is mostly noise. What matters is whether you're appropriately diversified, whether your asset allocation matches your risk tolerance and timeline, and whether you stick to your plan when things get bumpy.

In inflation-adjusted terms, stocks have historically provided positive long-term returns above the rate of inflation, helping preserve and grow purchasing power. During the current bull market, the S&P 500 is up 73% in real terms after accounting for inflation, not as impressive as the nominal 86%, but still substantial wealth creation.

The key insight from Charles Schwab's research: long-term investors are usually better off staying the course and not pulling money out of the market, as long as their situation hasn't changed. Bear markets since 1966 have averaged roughly 14 months in duration, far shorter than the average bull market, and they often end as abruptly as they began with rebounds that are very difficult to predict.

The Behavioral Trap

Here's where most investors go wrong: they feel compelled to act. Bloomberg data shows that investors who added money following the 50 worst market days since 1995 were far better served than those who withdrew money on those same days.

Famous fund manager Peter Lynch once warned that "far more money has been lost by investors trying to anticipate corrections, or trying to time the market, than has been lost in corrections themselves."

Markets can and likely will experience volatility in 2026. Higher valuations make them more vulnerable to shocks, and geopolitical risks, policy uncertainty, and questions about AI valuations all create potential catalysts for pullbacks. But for investors with properly structured portfolios aligned with long-term goals, these movements represent temporary fluctuations, not permanent losses.

Conclusion

Market rallies feel good and sell-offs feel terrible, but both are temporary. What endures is the long-term upward trajectory of markets driven by innovation, productivity growth, and corporate earnings. Your job as a long-term investor isn't to predict or avoid every correction, it's to ensure your portfolio can weather them without forcing you to sell at the worst possible time.