This year has been quite volatile, both in terms of news stories and financial markets. We have seen both stocks and bonds fluctuate greatly. While this kind of volatility is normal (from a historical standpoint), it is something we haven’t seen for some time. Over the past 12 years, we have experienced very low interest rates, decent economic growth, and a strong bull market.
The stock market and economies of the world have routinely dealt with economic shocks and undesirable economic circumstances. Today we are dealing with the aftereffects of a generational pandemic – complete with heightened economic uncertainty and strong inflation. The Fed has begun increasing interest rates to fight inflation, and noted last Friday, that they will continue to increase interest rates, even though doing so will likely cause economic pain.
Historically, the best remedy for inflation has been to induce a recession, and based on the comments from the Fed on Friday, that is something that could occur. In other words, they are (correctly) more concerned about inflation than they are about the short-term pain of a recession.
One of the most difficult things about investing is projecting what the market will do. History shows that is impossible – no matter how much data a person may have. We all have opinions, some of them strong opinions, but a strong opinion does not translate into an accurate prediction…even when we are “certain” we will be right. The market is unpredictable because it is the product of millions of investors’ opinions and feelings, which can change very quickly. If the markets moved based on actual data, it might be easier to understand and predict. But it moves based upon the opinions, feelings, and perceptions of millions of investors and traders.
The market and the news will likely remain volatile, and may be negative, as interest rates increase and we work through this inflationary period. It is natural to think, “well, if things are getting difficult, why not cash out and wait for a better time?” There are two problems with such a statement: (1) you never know when the market will turn (2) you must know when to get back in (no one knows either of those points).
If market fluctuations and negative news affect you (as it does most people), the best advice during these periods is to simply not look. The market will do what it does. You have a choice whether you want to experience the stress of every market move and news story or choose to ignore them while the economy works through these challenges – focusing instead on what really matters and brings you joy.
I do not know which direction the next 20% move in the market will be. But I have much greater confidence in which direction the next 100% move in the market will be.
Bo
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results.
