What a day!
Global equity markets have had a rough and tumble start for 2022. Specifically, the U.S. markets have had a difficult time coming to grips with the new reality: We are in a rising rate environment, it appears the Fed will hike rates AND cut off the faucet of money into the economy. At first glance, those may sound like actions that indicate the market will continue to decline, yet we believe the opposite is true. Rising rates is often an indication that the economy is healthy. The Fed cutting off their stimulus plans is at least one sign that the economy doesn’t need it anymore (because it is healthy enough to stand on its own).
Now, there are some unhelpful non-market-related current events taking place that have left a pall over recent daily trading. Will Russia invade Ukraine? We do not know the answer to that. Ukraine is not part of NATO—and to our knowledge NATO has not provided Ukraine with a membership action plan (MAP), despite recognizing Ukraine’s aspirations for NATO membership—and thus is really on its own unless the US and European nations decide they want to quiet down the Russians. Putin’s saber-rattling is not a big surprise. He has talked a big game for as long as he has been in power and his key objective is to sow discord “in the West”. How this impacts whether or not Disney’s stock price goes up or down? It doesn’t really in the long run. But anytime there are geopolitical tensions, the stock market gets the yips. Some perspective:
Since January 1st, 2019, the S&P 500 is up over 80% (Source: yCharts)
More specifically, Q4 2021 saw the S&P 500 up about 11% (Source: yCharts). After such a strong run, a pause to catch one’s breath seems in order.
Going back to 1928, the S&P 500 has dropped by more than 10% nearly 2/3rds of the time at some point during the year (Source: Ben Carlson, author of A Wealth of Common Sense)
For longer term investors, which we are, volatility provides opportunity to buy at lower prices. What we are seeing this month is NOT new - this is part of investing. We do not believe that the first 20 or so trading days of 2022 are indicative of the next 11+ months of the year. There will be other spats that will likely cross your TV screen this year: Divisive rhetoric between Republicans and Democrats, perhaps increased tensions with Russia and China. But remember, doesn’t this happen almost every year anyway? For the long-term, the market just takes the volatility in stride as this presents opportunities for folks to rebalance their portfolios, buy low, and continue with the plan that clients and their financial advisors have put together to reach their agreed upon goals.
Our team is closely watching the markets and believe that staying the course and staying invested with our current strategies is the prudent decision. Should you have further questions please don’t hesitate to reach out!
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