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Market Volatility Strikes Back

Increased volatility has returned to financial markets, and it looks like investors may be in for quite a few months of volatility before the market can resume the uptrend, we saw last year. Volatility was the trend for domestic and foreign equity markets in January, as well as the domestic bond market.

The broad-market S&P 500 flirted with a 10% pullback, for instance1. The ups and downs in the domestic equity indices steadied momentarily, ahead of the Federal Reserve’s meeting, which left short-term interest rates unchanged, but turned skittish shortly after Fed Chair Jerome Powell announced there was “quite a bit of room” to raise rates soon.

Chairman Powell stated that no final decisions have been made yet, but he could not rule out raising rates more aggressively if warranted. Many economists feel accelerated increases are not necessarily an inevitable conclusion but note that the labor market is tight, and inflation is well above the Fed’s long-term goal of 2%2.

With uncertainty regarding inflation, economic slowing (though it remains at a healthy growth rate) and a Fed tightening cycle upon us, investors could be in for several months of volatility before the market can resume an upward trajectory 3. Headwinds also include geopolitical frictions between Russia and Ukraine as well as uncertainty over the direction of U.S. policy. It appears that the current focus in Washington, D.C., is on economic competition and China policy, which has the potential to increase next-generation technology and domestic manufacturing.

The two-year anniversary of this bull market is coming, and we know that historically, this is the point where returns become more moderate; volatility increases; and investors become more selective. It is important that investors remain patient, committed to their investment strategy, and steer clear of any gut-reaction portfolio moves.

The financial planners at Insight can help address questions about how current conditions may impact your holistic plan. Please reach out to us with any questions.

 

Written by,

Alex Austin, CFP®

Alex Austin, CFP®

Alex is a comprehensive, fee-only financial planner. Alex made a career move into personal financial planning and investment management after 10 years in investment banking and corporate finance to find more meaning in his work and better match his personality and interests to his career.

1https://www.spglobal.com/spdji/en/index-family/equity/global-equity/sp-global-bmi/#overview

2 https://www.cnbc.com/2022/01/26/real-time-updates-of-the-big-fed-decision-and-jerome-powells-press-conference.html

3https://www.schwab.com/resource-center/insights/content/market-perspective

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