Interest rates, trade talks, inflation fears, political events, and international developments all can influence stock prices. Volatile market activity can be unnerving but know our team at MRK Financial Solutions is keeping a close eye on all fluctuations.
On February 22, 2022, the S&P 500 entered correction territory, which can be defined as a decline of 10% or greater from a recent high in the financial markets. This came as Russia has sent troops into Ukraine, signifying the country’s desire to accumulate power. This full-scale Russian invasion of Ukraine can cause serious disruptions to global energy markets. Corrections can last anywhere from days to months, but few have lasted longer. The good news for investors is that history suggests the market tends to eventually bounce back after the broad-market benchmark suffers a correction. On average, the index gains 0.7% one week following a correction but declines 0.4%, on average, about two weeks out. Thereafter, the market marches higher in the following three-week, one-month, six-month, and full-year periods.1
During periods of volatility, it’s important to remember that stock market corrections are not unusual and represent a normal part of the investing cycle. There there are benefits to strategically rebalancing portfolios, and when the market gives the right opportunity, we will look to do so. Rebalancing based on market conditions has historically been considered a tactical approach to weathering volatility.
This is a good reminder of what wise investors already know – it’s not a matter of IF market volatility will occur; it’s a matter of WHEN. We understand that current events can be a bit overwhelming, but remember, we created your financial strategy based on your goals, time horizon, and risk tolerance, and we anticipated there would be unsettling events along the way. If you know that swings (for good or bad) are always on the horizon, you can brace yourself for impact and worry less about what happens from week to week and more about what happens over the long term.
A good financial plan is not dependent on a single sector or even merely your investment portfolio. If you have any questions or would like to stress-test your financial plan, don’t hesitate to give us a call.
- Market Watch, 2022
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.