There are many forces that contribute to the overall volatility we see and experience in the equity markets; from the Geo-political environment to the Federal Reserve and the global markets themselves; all of which are beyond our control. In my opinion, it all comes down to two key market driving forces; earnings and emotions. Human emotions tend to rise and fall based on how we feel about the latest news headlines and events in the market place or around the world. Because emotions are temporary and ever changing, their impact to the markets are usually temporary and ongoing. As we find answers to certain questions and solutions to problems, our fears and concerns subside and give way to a more optimistic outlook. This cycle continually repeats itself. Ultimately, fear and emotion will likely give way to logic and earnings. Behavioral finance or behavioral economics incorporates psychology-based theories to help explain this market volatility. Simply put, if we have a herd like mentality and we follow the herd, we are going to step in what they leave behind. A well-diversified portfolio of quality investments that are properly allocated among the various asset classes is designed to withstand the test of time.

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