Why we manage risk
Pullbacks like this one are common, and most stop short. A few don’t. Here is what history shows, and how we prepare for the exceptions.
- Since 1980, the S&P 500 has dropped at least 5% at some point in 43 of 46 years, yet it finished higher in 35 of them.
- Before this one, the S&P 500 had 49 declines of 5% or more from a record high since 1980. Two-thirds stopped short of 10%. Six became bear markets of 20% or more.
- So far, this pullback is about 5%, smaller than the median drop within a year (about 10%).
- No one knows in advance which pullback becomes a bear market. That is why we manage risk, with tools such as protective puts.
The past few weeks have been uncomfortable, especially for technology stocks. As of midday November 5, 2026, the S&P 500 was about 5% below its October 6 record high and the Nasdaq 100 was about 14% below its high. Semiconductor stocks have led the decline: the PHLX Semiconductor Index (SOX) was about 37% below its June 22 record. Moments like this are when it helps to step back and look at the history.
Pullbacks are a normal part of investing
Since 1980, the S&P 500 has fallen at least 5% from a high at some point in 43 of 46 calendar years, and at least 10% in about half of them (24 of 46). In the median year, the largest drop was about 10%.
Yet the index finished the year higher in 35 of those 46 years. Even among the 24 years with a drop of 10% or more, 14 still ended the year up. This year is an example: the S&P 500 fell about 9% into late March and, as of November 5, was still up more than 8% for 2026.
Most pullbacks stop short. A few don’t.
Another way to look at it: before the current pullback, the S&P 500 had fallen 5% or more from a record high 49 times since 1980. Two-thirds of those declines (33) stopped before reaching 10%, and the index typically closed at a new record about two months after the high. Another 10 reached 10% to 20%.
Six became bear markets of 20% or more, including the four largest: 1987, 2000, 2007 and 2020. Those took years, not months, to get back to a new high. And every one of them started out looking like an ordinary 5% pullback.
Where this pullback stands
So far, this decline is about 5%, about half the median drop within a year. The S&P 500 fell 19% into April 2025 and 9% into March 2026, and reached new record highs after both. Our long-term trend for the S&P 500 remains favorable, while the Nasdaq is testing its long-term trend, and we’re watching it closely.
Based on history, this appears to be a routine pullback so far, and pullbacks of this size have often worked themselves out over time. But history is a guide, not a guarantee. No one can know in advance which pullback becomes one of the six, and that is exactly why we manage risk.
How a protective put works
A protective put is like insurance for your stock. It gives the right to sell at a set price before a set date. If the market falls below that price, the put tends to gain value and can help offset losses on the shares. We use protective put options that seek to establish a floor beneath your portfolio.
Consider a hypothetical example: 100 shares of SPY at $750 (a $75,000 position), protected with a three-month put at $750 that costs about $23 a share, or $2,300, roughly what a put like this cost on November 5.
That put is a right to sell SPY at $750 until it expires, even if SPY drops to $600. If SPY did fall 20% to $600, the shares alone would lose $15,000. With the put, the shares could still be sold at $750, so the loss would be limited to the $2,300 paid for the protection. If SPY rose instead, the position would still gain, less the $2,300 cost of the put.
Like insurance, most years it isn’t needed, and it isn’t free: protective puts involve a premium cost that can reduce returns in stable or rising markets. Protection like this is meant for the years when a routine pullback becomes something much bigger.
Where portfolios stand today
Puts are one of three tools in our Tactical Momentum Strategy, alongside covered calls and cash. Today, portfolios in that strategy are in a more protective posture: put protection in place and a significantly higher position in cash and short-term Treasuries. If the trend improves, we would look to add risk back; if weakness continues, those portfolios are already positioned more defensively.
Not every account looks the same. Client accounts follow different strategies and allocations based on each client’s goals, risk tolerance and circumstances, so the use of puts, cash and other tools varies from account to account. If you’d like to know how your own account is positioned, just ask.
The bottom line
We don’t try to predict every pullback, and we don’t need to. Our approach is to stay invested while the trend is favorable and keep protection in place for the times it isn’t. If you have questions about your account, reach out or call us at (919) 323-4219.
Frequently asked questions
What is a protective put?
A protective put is like insurance for your stock. It gives the right to sell at a set price before a set date, so if the market falls below that price, the put tends to gain value and can help offset losses on the shares.
Do puts cost money?
Yes. A put costs a premium, much like an insurance policy. In stable or rising markets, that premium can reduce returns, and a put can expire worthless if the market does not fall below its strike price.
Why hold puts instead of selling stocks when the market drops?
Selling locks in the decline and means deciding when to buy back in. A put lets a portfolio stay invested while seeking to limit how much it can lose during the life of the option. Each approach has trade-offs, and we also use covered calls and cash as part of our strategy.
See how we manage risk.
Puts are one part of our Tactical Momentum Strategy. Our strategy page shows how the pieces fit together.
General disclosures. This commentary is provided by Momentum Wealth Planning, LLC (“Momentum”) for educational and informational purposes only and does not constitute investment, legal, or tax advice, nor an offer or solicitation to buy or sell any security. Views expressed reflect our opinions as of the date written, are subject to change without notice, and should not be relied upon as a prediction or guarantee of future market behavior. Information and market data referenced have been obtained from sources believed to be reliable, but Momentum does not guarantee their accuracy, completeness, or timeliness.
Index data. Figures use the S&P 500 index (daily closes, price only, excluding dividends) from Yahoo Finance, through midday November 5, 2026; Nasdaq-100 and PHLX Semiconductor Index (SOX) levels are measured the same way, from each index’s record close. The drop within a year is the largest peak-to-trough decline within each calendar year. A decline from a record high runs from a record close until the index closes at a new record. Indexes are unmanaged, do not reflect fees or expenses, and cannot be invested in directly.
Not indicative of any account. This article describes our general approach and is not indicative of the holdings, positioning or results of any individual client account. Client accounts follow different strategies and allocations based on each client’s objectives, risk tolerance, and account constraints; the use of options, cash and other risk-management tools varies by account, and no client should assume their account holds any position described here.
Options. Options involve risk and are not suitable for all investors. Protective puts require paying a premium, may expire worthless, and do not eliminate the risk of loss. The protective put example is hypothetical, uses a premium that approximates a three-month at-the-money SPY put on November 5, 2026, ignores taxes, commissions and dividends, and does not represent any client account or a recommendation. Actual option prices and results will vary.
Investing involves risk, including the possible loss of principal. There is no assurance that any strategy, allocation, or risk-management technique will achieve its objectives, limit losses, or prove profitable. A risk-managed portfolio may underperform broad market indices, particularly during strong rising markets. Past performance does not guarantee future results.
Momentum Wealth Planning, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission, located in Estero, Florida. SEC registration does not constitute an endorsement by the SEC, nor does it indicate that Momentum has attained a particular level of skill or ability. Advisory services are offered only to clients or prospective clients where Momentum and its representatives are properly licensed or exempt from licensure. Additional information is available in our Form CRS, Form ADV Part 2A, and Additional Important Disclosures.