Ongoing Volatility Explained…

The headlines are endless…

Let’s break down what we’re hearing.

The Market
Last Thursday’s decline was most likely in response to the Fed’s rate increase. It’s important to remember that this is normal and a typical level of volatility. It is understandable though, how these dramatic shifts could shake even the most confident investor.

 

Inflation
Inflation is in the news. Barring new developments (always possible, but not expected), inflation should peak in the next month or two. Thankfully, inflation is expected to decline rapidly thereafter (again, barring new unexpected developments).

 

Interest Rates
Interest rates on the other hand are following a different path. Interest rates started rising in late 2020 and are expected to rise, not for another 2, 3, or 4 years, but instead for the next 2, 3, or 4 decades. The reasons for this are solid and robust, and are driven by economics, societal pressures, income/wealth inequality, and long-term governmental policies.

 

War in Ukraine
The war in Europe remains the primary wildcard in the mix. It could take us in either direction, but remains inherently unforecastable at this instant. Both the stock and bond markets have done a good job of already fully discounting a middle path for the European war. Unfortunately, that war could surprise on the upside or on the downside, and by a wide margin. Strong directional bets on the future course of Europe are highly perilous.

 

Let’s take a step back
Earlier in the year, we shared these two charts from J.P. Morgan Asset Management. Now is a great time to revisit these impactful visuals!

This first chart shows that despite intra-year drops of 14.0%, annual returns were positive in 32 of 42 years.

This second chart shows the impact to an investor should an investor choose to exit the market during downturns.

Now, take a deep breath. It is time for patience, discipline, and a long-term view. Turn off the noise and remember that we’ve planned for these downturns, and we will continue to monitor your situation on an ongoing basis.

If you have any questions at all, please do not hesitate to reply to this email or call anytime.



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