We recently shared a newsletter with clients titled “Recession vs. Inflation: The Main Event”. The content supported the causes of the S&P 500 approaching bear market territory being ‘severe inflation, and the extent to which the economy might be driven into recession by the Federal Reserve’s somewhat belated efforts to root that inflation out’.
Over the past month, we have seen a continuation of these themes. Recently, the Consumer Price Index showed that prices had climbed 8.6% over the past year, a sign that inflation is not leveling off or cooling. Consumers are continuing to see higher prices particularly in those areas that involve energy prices such as fuel and airlines fares. All eyes are on the Federal Reserve, scheduled to meet later this week, and how they respond to increasing inflation. While we cannot predict exactly how the Fed will respond, elevated volatility within the markets is likely as the Fed unwinds their monetary stimulus measures.
Financial markets have had a challenging start to the year in almost every sector and market. Yesterday, the S&P confirmed a bear market by closing down more than 20%. The causes to bear markets always differ but the bottom line is that bear markets are a part of normal market cycles. On average, bear markets have occurred about every 3.6 years since 1928. Like Minnesota winters, they are a perpetual part of the investing landscape.
We understand that these financial conditions, as well as a barrage of accompanying news headlines, can cause negative emotions amongst investors. Nobody enjoys bear markets or watching portfolios decline including us. However, we know the right step forward is adhering to long-term investing principles that lead to successful outcomes particularly in times like these when it can be the most challenging. We also know that how people handle the inevitable periods of market declines ultimately impact the success of their financial plan years down the road.
We will be spending much of our time following market conditions and how they impact our clients’ portfolios. If you are not a client but are curious on how this may affect your long-term plans, please tap into our years of expertise and give us a call. We’d be happy to talk with you.