Bumpy Markets
You may remember back in July of 2021, the Dow Jones Industrial Average inexplicably plummeted one day, and the news outlets spoke in serious, worried tones. It was almost comical to me. And so, I penned a blog post about volatility.
With the help of a colleague, I researched how frequently major indexes swing by 2% in a day. Historically speaking, it happens pretty regularly. By the time I did my homework, it was no longer relevant to July’s event. But statistics told me that I could trot out the blog post again soon enough.
Here’s the thing, though. There hasn’t been much volatility until recent weeks since that one day in July. The stock market has made a very boring, upward march for a long time now.
Here’s the other thing. July’s bad day didn’t have a clear narrative. It just happened. And that is pretty normal for financial markets. Right now, I can’t publish my old blog post because very specific events and conditions have roiled markets in a way we haven’t seen since March of 2020.
When the year began, the days of cheap money were coming to an end as the Federal Reserve signaled its intentions to raise rates this month. Tech companies that have been fueled by easy money saw their share prices dropping. Inflation took root in the U.S. and spooked markets before we even suspected Russia might invade Ukraine. Now the prospect of supply line interruptions for commodities like oil, natural gas, and wheat have fanned fears of inflation further. Add in the uncertainty of Vladimir Putin’s endgame in Europe, and it’s fair to say that investors are afraid.
In July, I learned that since 1999, the major markets have had a daily move of 2% or more about once every three weeks on average. The funny thing about averages is that it’s not the same as having such moves every three weeks. Still, I thought I would get to tell this story soon enough. The fact that I didn’t use the blog post for the rest of 2021 speaks to the overall lack of volatility last year.
Oh, but 2022?
As of March 3, there have been 41 trading days so far this year. Looking at the S&P 500, seventeen of those days have seen 2% or more intraday moves. That’s a lot. It’s enough to give anyone the jitters.
My goal is to offer you financial peace of mind. But I cannot tell you what will happen in the near term. This is why good financial planning is crucial. I work with clients who are buying a house today. Their down payment has been sitting in cash for months now. For my clients who have decades before retirement, the last 41 trading days will be long-forgotten when they start to draw on their nest egg. My retired clients have ample cash to ride this out and a good allocation to limit the volatility.
How are you feeling? Please resist the impulse to time this market. You have to be right twice. You must accurately predict when to exit the market and know the right time to re-enter. Selling today may save you future downside losses. But missing the inevitable market rebound can prove much more costly to your long-term success.
Please don’t doom scroll. Please don’t obsess about the news. Set down your phone. Turn off the TV. Here in North Carolina, the weather is amazing. Go for a walk. Shoot me an email or give me a call. Check-in on a friend or family member. This volatility is what we accept when we invest for the long term. You don’t have to like it, but you don’t have to let it interrupt your life.
