Volatility is back. The media will do their job of keeping you up to date with the latest market-moving news. My job is to take a step back and help you discern the signal from the noise. During turbulent times in markets (or in life), I find it helpful to look back at past experiences to help guide uncertain present times. Here are three lessons I have learned from the past five years that I think we can apply today.

Lesson #1: March 2020 – Today’s news may feel like a distant memory five years from now.

I remember sitting in the restaurant watching the SEC college basketball tournament when play suddenly stopped, and everyone evacuated the arena. We all have similar stories of when the world stopped turning in March 2020.

The COVID-19 pandemic caused one of the greatest non-military losses of life our country has ever seen and the most abrupt economic shutdown we hopefully will ever experience. At the time, seeing beyond that present moment felt impossible. And that was just five years ago. If the markets and economy could overcome one of the worst global crises in our lifetime, how long will the shelf life of today’s news last?

Takeaway: With a long-term investment perspective, take the news of the present in stride.

Lesson #2: June 2022 – Inflation & Rate Hikes – Markets can move outside the prescribed box.

Inflation is transitory. I still remember hearing that phrase over and over as inflation continued to rise in 2021 and early 2022. By June 2022, inflation had risen to 9% - a level no one thought likely in the dormant inflation era of the 21st century. What followed was an interest rate hiking campaign by the Federal Reserve that was the steepest and fastest in the last forty years. Both the inflation level and rate hiking cycle went well beyond any base case expectations from investors.

Markets and the economy can often be more unpredictable than we anticipate, which can lead to market moves both up and down further than we would rationally expect. 

Takeaway: Be prepared with an investment plan that fits your needs and expects the unexpected.

Lesson #3: March 2023 – Silicon Valley Bank Collapse – Corrections can feel like the start of a crisis.

The first two lessons had markets more than primed for interpreting the Silicon Valley Bank collapse in March 2023 as the next major crisis. A run on banks was feared, recession felt imminent, and market contagion was a real risk after just starting to gain traction from the inflation spike in 2022. 

Bear markets, by definition, start as a correction first. According to JP Morgan Guide to the Markets, since 1980, the S&P 500 has had intra-year corrections of 8% or more in 34 out of 45 years, about 3/4 of the time. However, only 10 of those intra-year declines became sell-offs of 20% or more, meaning less than 1/3 of those market corrections materialized into a 20% market sell-off.    

Takeaway: Market corrections are normal and occur in any given year more frequently than not.

For a closing thought, I will leave you with this excerpt from my March 2022 update during the inflation spike and the first invasion of Ukraine that can provide perspective for us in these times: 

We talk a lot about thinking in decades with your investment plan. So, trying to make long-term investment decisions based on global events at present is challenging at best. The COVID-19 pandemic and war in Ukraine are tragic events, and what we often underappreciate is the resilience and adaptive ability of the human spirit in the depths of these events, such as rapid improvements in workplace technology and efficiency or developing and distributing a vaccine at unfathomable speeds.

The one thing we know for certain is that current news and events will inevitably change. A long-term investor knows these major news events and the volatility that come with them are the price of admission we pay in exchange for expected compounding returns over time. The market has shown that underlying resilient spirit time and time again as it climbed the wall of worry for decades. We are believers it will continue to do so long into the future. 

If you or someone you know are questioning how current events may impact their investment plan, please reach out to us today.

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