As many have noticed, markets have been extremely volatile this week, first heading into correction territory and then bouncing right back.1 In the moment these might seem like out of the ordinary moves, but are they? The simple answer is not really. These things happen pretty regularly in the markets.
Let’s start with what led to the selloff.
As usual, it looks like a few things:
Fears around the Federal Reserve raising interest rates and what rapidly removing support could do to markets and the economy.2
Inflation worries (it’s at a 40-year high).3
A potential hot war in Ukraine.5
The bottom line is: markets are being driven by fear, anxiety, and uncertainty.
Could we see a bear market or serious corrections in the weeks ahead?
Realistically anything is possible. Corrections happen regularly and it wouldn’t be surprising to see continued volatility in either direction given the current environment. However, it’s always important to keep these moves in context. Below is a chart that shows intra-year drawdowns in the S&P 500 alongside annual performance to illustrate how often markets can drop.
(Take a look at the red circles to see the market drops each year.)
The big takeaway? In 14 of the last 22 years, markets have dropped at least 10% intrayear.6 Keep in mind that the past 22 included the Tech bubble bursting and the Global Financial Crisis of ’08-’09 as well.
People are dealing with a lot of uncertainty and a lot of investors are feeling understandably cautious.
However, that doesn’t mean that we should panic and rush for the exits.
We have no idea how long this wild ride will last. However, given the data above, it’s not uncommon for the market to move like this and ultimately provide a positive return. Having a robust plan and sticking to it is the most important thing one can do in times like these.
Always remember there are plenty of bright spots on the horizon as well in regards to employment, earnings, economic growth, and COVID.1
Your team at iNNOVA is always here to talk through any concerns you might have so don’t hesitate to reach out if you have any questions!
INNOVA is a SEC registered investment adviser. Information presented is for educational purposes only intended for a broad audience. INNOVA is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.