March is like a month of transition, in like a Lion, out like a Lamb. This rings true for both the weather and the markets. What is driving market volatility in 2022?
Currently, inflation is the key driver of uncertainty and market volatility right now. The latest inflation reading came in at 7.5%, well above average in recent history. Presently, the economy has held up despite high inflation. The concern of course, is how long will it last? The Federal Reserve has indicated they are near a decision to end their easing program and begin to raise interest rates to combat inflation. Interest rate adjustments are a common tool used by the Federal Reserve to maintain the health of the economy. On average, the S&P 500 is +7.1% 6 months after the first interest rate hike in a new cycle. Returns are positive 85.7% of the time over the same 6-month period.
Volatility can be a good reminder to make sure your investment portfolio makes sense. For most people, stock market drops create uncertainty, sometimes even anxiety. It is natural to wonder if you should try to pull out of the market to avoid losses, or if the investments you hold are just too risky for you. But panic isn’t a strategy. It is important to keep perspective when the markets get rough, so take the time to see how you feel about risk and how those feelings may have changed over time.
Working with your Financial Advisor can help you stay grounded. Give us a call anytime.
Travis, Mark, Brady and Makayla