From the war in Ukraine, inflation, supply chain issues and the recovery from the Covid-19 pandemic, market turbulence has been at the forefront of investor’s minds. It is impossible to know how the market will react to global or economic events on any given day. It is also difficult to manage emotions in situations like these.
Market turbulence is an unavoidable occurrence in investing. However, with the proper understanding of historic market performance, and a well-documented and proactively managed plan, investors should stay the course; and if they don’t already have expert advice, seek an experienced financial planner.
What is Market Turbulence?
Market turbulence is defined as the unexpected rising and falling of the stock market and the value of stocks and bonds associated with it. Since its inception, the stock market has experienced waves of highs and lows. The volatility of the stock market is affected by a variety of factors including government policy, major global events, or economic hardship at the consumer level.
Market turbulence is usually accompanied by an influx of investment and financial statistics and analysis of government actions. Experts and investors present analysis in order to predict how the market will react in the future. Many investors question their current strategy when market turbulence is underway. Attempting to forecast market trends by economic analysis leads investors to make drastic, and often times detrimental, decisions regarding their portfolios in an attempt to make up for losses due to market turbulence. Regardless of the market’s performance or turbulence, it is impossible to predict future trends with complete certainty. It is important for investors to reflect upon their investment goals, and if their portfolio still supports those long-term goals, they shouldn’t abandon their positions even in times of extreme or even moderate market turbulence.
Since the beginning of 2022, market turbulence has been in full swing at the hands of rising volatility and geopolitical uncertainty. One thing investors should always understand in times of high market volatility and turbulence is that is normal. Market responses to major global events or government action is considered healthy for the market and as shown by past market pull-backs, the market will bounce back. Investors can make logical decisions about their portfolio rather than making rash decisions in an effort to minimize losses.
For many, years of their hard-earned money and retirement funds are contingent on the performance of the stock market. Market turbulence is a threat to millions of people’s livelihood, so it is important to have a clear understanding of factors that may lead to market turbulence as well as how to prepare yourself for any major economic shifts in the market.
Factors Leading to Market Turbulence
Market turbulence can occur for a wide array of reasons. Even minuscule changes in policy or global events can lead to market turbulence. The market as a whole is less volatile than individual investments, but when the entire market experiences turbulence it can mean major losses for investors.
The war in Ukraine has had economic impacts across the entire globe. The United Nations has issued a variety of sanctions on Russia leading to heightened prices in the food and energy industries. Russia produces a large percentage of the world’s wheat and is a major distributor of oil and other refined fossil fuels. Furthermore, many companies have refused to operate within or trade with Russia as a result of the sanctions in place. All these factors, and more, have led to the war in Ukraine having a negative impact on the stock market and increased market turbulence.
The Federal Reserve is the central banking system of the United States and one of the main dictators of market performance. The Federal Reserve, also referred to as the Fed, has adopted an aggressive approach to interest rates as a result of major economic growth following the Covid-19 pandemic. As a result, inflation continues to rise and reach highs that the United States have not experienced in some time. The Fed was designed to centralize the banking system in the United States in order to prevent or control major economic crisis and their actions to raise interest rates are a result of this notion.
The culmination of inflation and an energy crisis due to the war in Ukraine have also led to higher prices on commodities such as food and gas. When consumers have less money to spend investing because of higher prices on necessities, the market traditionally will respond with initial pull-back and market turbulence. However, savings for many Americans is very strong, as is the U.S. economy.
How to be Prepared for Market Turbulence
Facing a volatile and turbulent market can be a complex task to handle. You may have a grasp on the market and understand your goals for investing, but do not know where to start. Finding the right financial advisor can put your investments at an advantage and provide peace of mind knowing that your goals are shared with someone who focuses in this area.
Regardless of the state of the market, having an expert financial advisor, a teammate, in your corner while you make decisions for your money can lead to a path of success.
Financial advisors can help you plan for the future by providing insights, strategies and proactive management that you may not have considered on your own. Advisors have access to forecasting trends, the market’s response to various global events, market declines, or even healthcare so your investment portfolio can stay on track.
Fragasso Financial Advisors, wealth management Pittsburgh, PA recently published an article titled, Understanding Marketing Turbulence, which can provide you more information on this topic. They understand the complexity behind turbulent markets as they have been in the industry for fifty years. Just think of all the events that have negatively and positively impacted the market in the past five decades! Their in-house team of portfolio management professionals provide insightful blog posts on relevant topics such as inflation, energy costs, and the market response to the war in Ukraine.
Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.