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Stock and bond markets have had a wild ride. What’s driving this recent volatility and what’s an investor to do? Read the latest Markets in a Minute for a back-to-basics playbook for volatile markets.
Markets in a Minute: Market Volatility
"I did not succeed in life because of intelligence. I did because I have a long attention span."
Stocks and bonds have had a wild ride over the last couple of weeks. Since the end of the unimpressive first quarter, the S&P 500 index has dropped 12%, while the Nasdaq has fallen 18%. Perhaps more distressing has been the concurrent drop in bonds, with the Bloomberg Barclays Aggregate Bond Index declining 5% over the same time period. Confirming this distress, one measure of volatility — the CBOE volatility index — is close to its high for the year.
Volatility may not be fun, but it is normal. The market regularly experiences declines. Despite those declines, the market has consistently rewarded those who can patiently see through the short-term volatility, much like the famed investor Charlie Munger and his long attention span.
In volatile times such as these, we favor a back-to-basics approach.
Declines in the S&P 500 Since 1946
Past performance is no guarantee of future results. Index: S&P 500 Index. Source: CNBC.
But first, what’s driving this volatility?
Important market shifts that began in late 2021 and early 2022 are still evident.
Relative Market Value of Consumer Staples sector to Consumer Discretionary sector
Past performance is no guarantee of future results. Forward projections may not come to pass. Source: FactSet
What’s an investor to do?
We began 2022 with a theme of “downshifting.” It was clear that the economy would slow after incredibly strong growth last year, and a fading of both fiscal and monetary policy. The addition of the war in Ukraine and rising oil prices have created an even faster and more complicated downshifting.
A back-to-basics playbook for volatile markets:
Trust the process – While markets may react to the day’s headlines, wealth is created over years. The longer an investment is held, the higher the chance of a positive return.
US Large-Cap Stocks: 1928-2019
Percentage of Time US Large-Cap Stocks Had Positive Returns, By Holding Period
Past performance is no guarantee of future results. Forward projections may not come to pass. Source: Brian Feroldi
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC does not offer tax or legal advice.