2022 has been met with volatility on two fronts, news headlines, and financial markets. This year has seen both stocks and bonds fluctuate a great deal. History has shown us that this is pretty normal but it’s something that we haven’t seen in quite a while. Over the past 12 years, we have been in an environment of low-interest rates, decent economic growth, and a strong bull market.
Economic shocks and undesirable economic circumstances are nothing new to the world and have been routinely dealt with. Presently, we are dealing with the aftershock of a pandemic and all that comes with it. Economic uncertainty and strong inflation just to name two.
In the past, effective action for inflation has been to cause a short-term recession, and based on the comments from the Federal Reserve, that will likely be the case once again. They seem to be more concerned about inflation than they are about the short-term pain of a recession. Whether they should be or not is another question.
While there are many difficulties when it comes to investing, predicting the future about what markets will do is extremely difficult if not impossible. It doesn’t matter how much information a person has, historically, this is just not something that can be done. Since we all have opinions and some are stronger than others, this doesn’t translate into accurately predicting the future of the stock market. There may be times that we are “confident” that we are right this time. The reason this is the case is that the markets are controlled by millions of investors. These investors are all acting on their feeling and opinions. If the market moved on actual data then it might be easier to predict.
It’s very possible that the market and the news will continue to be volatile and probably get more negative as we get closer to the mid-term elections. Rising interest rates will only add to the negativity. It’s perfectly normal to ask “If things are getting difficult, why not just cash out and wait until things get better?” The problem with this question is that you have the be right twice. You have to have successfully predicted that the market is not turning around and moving upward and you also have to predict the exact time to get back in. I like to use the metaphor of trying to catch a falling knife. You have to be able to catch it on the handle or you’ll get cut.
I had someone recently, tell me that the market was rumored to fall another 15%. I don’t know if that’s true or not (neither do they) but if history is any indication, I do have confidence in which direction the next 100% move will be. (A 100% to the downside would mean that there are greater things to worry about and economic life on the planet is no longer in existence)
Investment advice offered through OneAscent Financial Services, LLC, d/b/a Provident Oak Financial, LLC, a Registered Investment Adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training.