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Remaining Patient During Periods of Market Instability

Apr 8, 2022

Being a participant in the financial markets over the past quarter was challenging with markets falling into correction territory. Inflation, the war in Ukraine, the interest rate hike by the Federal Reserve, and rising oil prices all fed into a volatile 1st quarter of 2022 for the financial markets.

Corrections are normal for the stock market and unavoidable. In fact, market volatility is an expected part of investing although not predictable and certainly not comfortable at times.

Volatility in the markets is a reflection of new information being incorporated into the price of securities with decisions being made by investors about the potential impact to their securities from the new information.  Destabilizing information leads to more volatility with stability in prices returning once there is more clarity surrounding some events which we did see towards the end of March. 

Higher levels of volatility are experienced in the financial markets when investors are surprised by a destabilizing event such as the war in Ukraine. On top of the horrifying humanitarian consequences of a war, investors perception of risk and energy prices were impacted and we experienced more reactionary market responses.

With restrictions on the supply of oil from war in Ukraine adding to supply chain woes remaining from the pandemic, inflation in the U.S. has soared to levels not seen in decades creating more headwinds today for consumers, businesses and financial markets.

With more interest rates hikes by the Federal Reserve aligned to help address high inflation and a continuing war in the Ukraine, investors need to remain patient and disciplined through this challenging period in the market.  Markets can begin to recover without notice, so it is important to remain invested within a diversified investment strategy and not overreact to short-term events.

Although the market events which bring volatility may be different each time, the market progression and end result has historically always been the same; the market adjusts to new information, eventually reaches a new place of stability and begins again on a new path of appreciation.

 

 


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