October 2022 PDS Planning Market Commentary

Volatility has certainly picked up, with 25% of all trading days so far this year experiencing declines of 1% or more. According to Bespoke Investments, the only other post-WWII years with a higher frequency were 1974 (26.6%), 2002 (28.6%), and 2008 (29.6%). Market performance has deviated far from its historical averages of 8-10% returns. But, so too were 2019, 2020, and 2021 when the S&P 500 was up 28.9%, 16.3%, and 26.9% respectively. In fact, it deviates in almost all years from that average, yet we only focus on the years where the deviation is in the red. You can see in the chart below (S&P 500 annual returns) that there are far more years in the money than not. And occasionally, the red bars take a pretty hefty drop, but those are necessary in order for us to have exuberant recoveries. Losses like this don’t feel good, but this is normal. They can’t all be green bars – without the risk of red, there would be no reward for accepting the risk & volatility.

Source: Macrotrends

So what is causing the volatility? The majority comes down to the Federal Reserve’s response to record high inflation. They have been increasing the Federal Funds rate in aggressive fashion in attempt to cool inflation and the economy. Unfortunately, they are behind the curve and will need to continue raising rates for the near-future. We would expect this elevated amount of volatility to continue until inflation starts to ease and the Federal Reserve considers slowing their plan to raise rates. We urge investors to not make an emotional decision with their portfolio during these times of stress and maintain the course. Keep calm and invest on.

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