What Investors Learned When Everything Went Down at Once

The stock market ended the third quarter with losses, which seemed appropriate given the downbeat year that Wall Street has had in 2022.

Daily losses for the Dow Jones Industrial Average (^DJI 0.67%), S&P 500 (^GSPC 0.87%), and Nasdaq Composite (^IXIC 1.11%) were 1.5% or more. These added to steep declines for September, and another pullback for the quarter as a whole:

Data source: Yahoo! Finance.

Ordinarily, investors who have diversified portfolios can expect at least some of their holdings to rise in value in order to offset losses in the stock market. However, 2022 has been notable in that just about every asset class has seen big drops. That's left very few safe havens for investors to use, and it's made many people second-guess their longer-term investing strategies.

U.S. stocks add to the suffering

Friday's declines pushed the S&P 500 to its lowest level of the year, down 9.3% for the month of September and 5.3% for the third quarter. Year to date, the broad-based large-cap index has fallen almost 25%.

Small-cap stocks have done worse. The Russell 2000 was down 9.7% in September, and while it finished lower by just 2.5% for the quarter, the small-cap index has fallen almost 26% since the end of 2021.

Image source: Getty Images.

No safety abroad

International stocks can often provide some diversification for investors. But with the macroeconomic challenges hitting the market being global in nature, there hasn't been much relief in foreign stocks.

The iShares MSCI EAFE ETF (EFA 1.17%), which tracks a popular index of developed foreign markets, lost 9.2% in September and 10.4% in the third quarter; year-to-date declines have exceeded 27%. Emerging markets have done even worse, with the iShares MSCI Emerging Markets ETF (EEM 1.08%) dropping 11.5% for the month, 13% for the quarter, and 28% for the year.

Bond losses surprise investors

Perhaps the most surprising declines have come from the bond market, where investors have learned firsthand how difficult rising-rate environments are for fixed-income securities. Bond yields have soared, and that has sent prices plunging.

The Vanguard Total Bond Market Index (BND 0.04%) lost 4.2% in September and 4.6% in the third quarter. So far in 2022, it's down 14.5%, by far the worst bond market performance in years. Longer-term bonds have seen even bigger hits, as the iShares 20+ Year Treasury Bond ETF (TLT -0.17%) has taken losses of 8.2% for the month, 10.3% for the quarter, and a crushing 30% blow so far in 2022.

So much for inflation hedges

Nor have assets with a reputation for protecting against high inflation been particularly helpful. Gold prices closed at $1,662 per ounce, down from around $1,710 at the end of August, $1,815 at midyear, and $1,820 at the end of 2021.

Bitcoin (BTC -0.05%) has been even more disappointing. Closing near $19,400, the cryptocurrency is down just $650 over the past month and $500 since the end of June -- but it fetched more than $46,000 at the beginning of the year, and has lost almost 60% of its value since.

The only defense: a long-term perspective

Unfortunately, the takeaway for investors is that over relatively short periods of time -- and yes, nine months can be short for these purposes -- market performance is unpredictable, and just about any result is possible. Over the long run, the performance of various investments depends more on their long-term fundamentals.

That's little comfort for investors who've suffered losses in 2022. However, it's a lesson that many with more experience in the market have seen play out numerous times in their careers. And while no one can say exactly when a rebound will come, there's comfort in knowing that in the past, it always has come eventually.