Worst Quarter Since 2022? Why Staying In the Market May Matter More Than Timing
The first quarter of 2026 is in the books — and it wasn't pretty.
The $S&P 500(.SPX)$
But on the final trading day of March and into April, sentiment shifted. Oil prices pulled back sharply and the S&P 500 posted back-to-back daily gains of 2.9% and 0.7%, its strongest two-day rally since May 2025.
Hope and fear now coexist. And for long-term investors, the instinct to step aside "until things settle down" has rarely felt stronger. But history suggests that instinct may be one of the costliest mistakes you can make.
The Price of Sitting Out
When markets turn volatile, selling feels like the safe move. But research from J.P. Morgan Asset Management tells a different story.
Over the past 20 years, seven of the 10 best trading days for the S&P 500 occurred within two weeks of the 10 worst days. The rallies didn't come after the dust had settled — they came while the storm was still raging.
The math is unforgiving:
• Stay fully invested over 20 years: solid long-term compounding.
• Miss just the 10 best days: your total return is roughly cut in half.
• Miss the 20 best days: you barely beat holding cash.
Consider what happened in the past two weeks. On March 27, the S&P 500 slumped in one of its worst sessions of the year, driven by escalating Iran tensions and surging crude prices. Four days later, on March 31, it surged 2.9% — the best single-day gain in nearly a year — on the first whispers of de-escalation.
The takeaway isn't that investors should ignore risk. It's that the price of being out of the market at the wrong moment is far greater than the discomfort of being in it during turbulent times.
What History Says About Rough First Quarters
A weak start to the year can feel ominous — but it rarely tells the full story.
Over the past 50 years, the S&P 500 has posted a negative first quarter 18 times. What happened next may surprise you: in the majority of those cases, the index recovered and delivered positive full-year returns.
The 2025 parallel is especially worth noting. Just one year ago, the S&P 500 was down a nearly identical amount at the end of Q1 — weighed down by tariff uncertainty and trade war fears. The year ended with a 16% gain.
Not every rough quarter leads to a full recovery. In 2008, a Q1 decline of nearly 10% deepened into a 38% full-year loss during the Great Recession. And in 2022, a weak start preceded a year of persistent declines.
The point is not that recovery is guaranteed. It's that a bad quarter alone is not a reliable signal to exit. More often than not, the investors who stayed the course were rewarded.
A Valuation Check: What the Numbers Say Right Now
Beyond historical patterns, current fundamentals offer some reassurance for long-term investors.
Valuations have come down meaningfully. The S&P 500's forward PE ratio has dropped from 23.1x in late October to approximately 19.4x — its lowest level in roughly 10 months. The index's earnings yield has climbed back above 5%, a threshold last crossed in May 2025, suggesting equities are returning to more reasonable territory.
The Magnificent Seven have seen a similar reset, with the group's forward P/E falling to 23.9x — and several names now trading at notably modest multiples: $Meta Platforms (META.US)$ at 18.5x, $NVIDIA (NVDA.US)$ at 20.0x, $Microsoft (MSFT.US)$ at 20.1x, and $Alphabet-C (GOOG.US)$ at 24.1x.
Earnings growth remains intact. According to FactSet, S&P 500 companies are expected to deliver:
• 13.0% year-over-year earnings growth in Q1 2026
• 9.7% revenue growth in the same period
• 17% full-year earnings growth for calendar year 2026
The information technology sector continues to lead, with projected net profit margins of 29% in Q1 — well above the broader market average. Notably, the valuation premium for tech stocks relative to the S&P 500 has narrowed to its tightest spread since June 2020, suggesting the recent sell-off has brought some of the market's most expensive names closer to fair value.
The fear gauge is elevated but declining. The VIX, or CBOE Volatility Index, has pulled back from recent highs to around 24.5 — still above its long-run average near 20, but well off the panic-level spikes seen during the worst of the March sell-off. The market is pricing in uncertainty, not catastrophe.
None of this means the road ahead will be smooth. The Iran conflict remains unresolved. Oil prices are volatile. And the upcoming Q1 earnings season — kicking off in mid-April — will test whether corporate fundamentals can withstand the macro headwinds.
But for investors focused on the next years rather than the next three to five weeks, the setup today looks more favorable than sentiment suggests.
What Investors May Consider
Volatility is unsettling. But for those with time on their side, it often creates opportunity rather than permanent loss. Here are a few principles worth revisiting:
Stay invested. The data is clear: time in the market has consistently outperformed timing the market. Liquidating a portfolio during a drawdown locks in losses and forces you to make a second, equally difficult decision — when to get back in.
Rebalance, don't panic-sell. If the recent decline has shifted your asset allocation away from your target, consider rebalancing. This is a disciplined way to take advantage of lower prices without making an emotional bet.
Consider dollar-cost averaging. For investors with cash on the sidelines, deploying capital in regular, fixed increments can reduce the impact of short-term volatility and smooth out your average entry price over time.
Let earnings — not headlines — guide your decisions. Q1 earnings season begins in mid-April. The data from actual corporate results will provide a far more reliable signal than daily swings driven by geopolitical headlines.
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