Recent Market Volatility
In the last ten trading sessions, the S&P 500 dropped 10% from its all-time high set January 26th and volatility, largely absent the past two years, returned with a vengeance. While we knew a correction was long overdue—the last one was in January of 2016—the violent nature of this turn was stunning. Many investors had been lulled into complacency after 13 consecutive months of positive returns, the longest streak in history.
Although many theories abound, we think the selloff resulted from the market properly reassessing the risk of inflation, given the strong employment and wage growth reports last week, and the implications of higher inflation for interest rates and Fed policy going forward.
Is The Bull Market Over?
We don’t think so, even though equity investors are still adjusting to what may be a higher interest rate environment. Economic growth is picking up globally, corporate earnings are strong, and classic signs of a recession aren’t yet apparent. Yes, the days ahead will likely be volatile, but we think stocks still have room to rise.
It’s important to understand there is a risk that the Fed will not be able to remove all of the accommodations put in place since the financial crisis without interest rates rising significantly and causing the upward path of stock prices to slow or even turn down. After such a strong run in the stock market, now is a good time to reassess your asset allocation and make sure it’s in line with your risk tolerance and time horizon.
The fatal flaw of many investors lies in their being unprepared to weather the inevitable, and even healthy, downturns in equity markets, which leads to panic instead of remaining calm and sticking with their plan. As always, we want to help you be comfortable with your plan so the benefits of long term investing work in your favor. Thank you for your confidence and trust.