Our featured article of the month, Market Volatility & Your Portfolio, attempts to bring attention to the complexity of the issues surrounding volatility in the markets and provides some historical context around pullbacks or drawdowns common throughout the years.
As humans, we try to simplify complex ideas into a one-issue cause-and-effect framework to help us better understand the situation. However, few things as complex as the global economy can be whittled down to one issue. Tariffs are not a new topic. Also, they are certainly not the only challenge facing the markets and the economy. But if you solely read the mainstream press, tariffs are described as a phenomenon and the sole ailment plaguing the economy. That is false.
In reality, multiple inputs are affecting the underlying economy and the markets, which, as a reminder, are two different things. Our country’s inflation rate, overall employment, debt levels, deficit spending, and Federal Open Market Committee (FOMC) policies, to name a few.
Inflation, for example, was rampant a few years ago and remains elevated to this day. Just because inflation rate growth has subsided does not mean the price of all goods and services has come down. Consumers are still paying prices that are much higher than they have been a few years back. Inflation growth that is easing means that prices are not rising or growing as fast as they have been. It does not mean the prices are declining. For example, the cost of dining out remains significantly more expensive than in years past. It does not seem to be increasing, but it certainly doesn’t seem to be declining either.
For retirees, in particular, inflation degrades their purchasing power at a time in their lives when personal income is less pliable compared to their working years. That’s why planning for inflation-adjusted income is a foundational principle to a well-designed retirement income plan alongside expected investment returns. Understandably, a decade and a half of sub-2% inflation due to unprecedented global central bank monetary policy distorted investors’ perception of what role inflation plays in planning calculations. Unfortunately, in the past few years, we have all been snapped back to the reality of inflation’s reductionary effect.
As for the investment markets, extreme short-term volatility, as we have recently experienced, is typically the result of uncertainty, an emotional reaction to a future unknown. While the current administration is attempting to “reorder” the global trade economy, the uncertainty of the rules or the outcomes, and considering the challenges to both our economy and the global economy, investors have decided to take a wait-and-see approach by selling investments. Is that the correct move? That is unknowable at this point. Also, it certainly depends upon each individual’s investment plans and objectives. What history tells us is this time isn’t different.
It’s been a busy few weeks as all the mixed economic signals have unsettled Wall Street—and market volatility is never comfortable for investors.
Here’s a short recap, so grab some popcorn. We’re going to cover a lot of ground quickly!
Inflation eased in February but is still a concern for some investors while…
Job creation slowed in January, which brings the spotlight to…
Fed Chair Powell, who said he’s in no hurry to cut interest rates, but investors are watching…
Tariff talks ebb and flow, which is causing some…
Businesses to hesitate as they prepare for 2025 and beyond, putting a spotlight on…
GDP, raising some concerns about a possible recession, which is causing…
Interest rates to trend lower, and that’s good news for…
Mortgage shoppers, who applied for more loans as rates fell for a sixth-straight week as…
Consumer confidence flips around, which brings us full circle to the mixed economic signals.
Today’s news moves so quickly that you should anticipate more price swings in the weeks ahead. But don’t let emotions override sound decision-making. As you can see, stock prices have intra-year drawdowns every year. So, while 2025 might feel extraordinary, history shows it is pretty much like every other year.
If all of today’s headlines have you feeling overwhelmed, please reach out so we can discuss what’s going on. Markets sometimes move quickly, which can be unsettling. So, I want to hear from you if your anxiety is causing you to question our overall strategy.
WStreet.com, March 12, 2025
CNBC.com, March 12, 2025
This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. Stocks are represented by the S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.