FinSyn Insights

Weekly insights on the markets, economy, and financial planning

A Wild Ride

Markets continued their wild ride this week, heading into correction territory, and then bouncing right back.1

On Monday, the Dow Jones Industrial Average moved 1,000 points in a single day – twice!! Stocks gyrated the rest of the week, with the S&P 500 down more than 7% so far in 2022, and the Nasdaq-100 index off more than 11%.

Crazy, right?

Not really. These things happen pretty regularly when investors get jittery.

As hard as it is sometimes, we have to remember that it’s not important what the market does on a day-to-day basis, but rather how we respond. We know, and accept, that the market can seem “crazy” at times.

So let’s talk about what’s going on.

What led to the giant selloff?

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

Tech earnings.4

A potential hot war in Ukraine.5

Bottom line: markets are being driven by fear, anxiety, and uncertainty.

Could we see a bear market or serious corrections in the weeks ahead?

Very possibly.

Corrections happen regularly and it wouldn’t be surprising to see continued volatility or major drops.

There’s nothing abnormal about the way stocks have been heaving up and down the past few weeks. It’s the calm of last year, when stocks rose almost 28% but fluctuated with a fraction of their usual intensity – that was abnormal.

Here’s a chart that shows intra-year dips in the S&P 500 alongside annual performance to illustrate how often markets take a dive.

(Take a look at the red circles to see the market drops each year.)

A Wild Ride

The big takeaway? In 14 of the last 22 years, markets have dropped at least 10%.6

We’re dealing with a lot of uncertainty and investors are feeling understandably cautious.

However, that doesn’t mean that we should panic and rush for the exits.

No one knows how long this wild ride will last, but we do know that it will pass.

And there are plenty of bright spots on the horizon, in terms of employment, earnings, economic growth, and COVID.1

We’re watching the markets closely and will keep you informed, as always.

 

1 https://www.cnbc.com/2022/01/23/stock-market-futures-open-to-close-news.html

https://www.cbsnews.com/news/stock-market-down-federal-reserve-inflation-earnings-2022-01-25/

https://apnews.com/article/consumer-prices-inflation-c1bfd93ed1719cf0135420f4fd0270f9

https://fortune.com/2022/01/24/apple-microsoft-tesla-earnings-reports-tech-stocks/

https://www.reuters.com/markets/europe/how-russian-ukraine-conflict-might-hit-global-markets-2022-01-21/

6 https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

Mike Minter

Mike develops investment portfolio allocations, handles trading and rebalancing, and conducts research and analysis as a Portfolio Manager and Financial Advisor for the firm. As a perpetual student of investing and the markets, Mike considers himself obsessed with the subject. Mike has earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Certified Fund Specialist® designations. He is also an active member of the Houston chapter of the Financial Planning Association (FPA).   Read Mike’s Profile HereRead More Articles by Mike

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