Adding Fuel to a Highly Volatile Market
The stock market started off the year negative, with inflation and possible Fed rate hikes being at the forefront of the minds of investors. Going into this week, the tech-heavy NASDAQ was already in “correction” territory, down over 13% from its November high. The S&P 500 index was heading towards a correction as well, down over 8% off its December high.
One of the strengths of US and global economies has been strong consumer demand. However, would an additional geopolitical shock be just enough to tip the scales? Military conflict and instability in the Ukraine region will most likely create a negative impact on the price of certain commodities such as oil and grains. Consumers would feel that additional inflationary impact at the gas pump and grocery store.
Investors will now turn to the next Fed meeting on March 16th. The Federal Reserve has been rumored to raise interest rates .25% – .50%. They have made it clear that inflation needs to be addressed. However, it remains to be seen if their hawkish stance softens as the Ukraine-Russia conflict evolves.
Where Do Investors Go From Here?
Though the current Russia/Ukraine geopolitical event is new this week, geopolitical events overall are not. And stock market volatility is inevitable. However, timing investment decisions based on geopolitical events has not proven to be a successful long-term strategy. An interesting fact: Over the past 20 years, 24 out of the 25 worst trading days were within ONE month of the 25 BEST trading days (source: Blackrock).
What should investors do? We recommend investors review their goals, timeline and risk tolerance with their financial professional on a regular basis. Now is a great time to do so. Remember that historically, markets react to news events on a short-term basis. However, markets tend to reward patient investors over the long-term.