Although the recent volatility can be unnerving, it\u2019s important to remember that it is impossible to accurately predict changes in the economy and how they might affect markets.<\/p>\n\n\n\n
September turned out to be a tough month for markets after performance started to look a little brighter late this summer. Earlier in the year, the key worry for markets was that the Federal Reserve was not acting fast enough to tighten monetary policy and that rising inflation was the predominant risk. Now, markets have reacted to growing concerns that the Fed and other central banks are tightening relatively severely, which could lead to a sharp decline in global economic growth.<\/p>\n\n\n\n
Since mid-August, the U.S. stock market is down around 15%, and high-quality fixed income is in the \u20134% to \u20138% range depending on the fund or index. It\u2019s likely that the weaker market performance reflects heightened expectations that the Fed, in its efforts to reduce inflationary risks, will continue to tighten monetary policy even if the economy starts slowing. How can we see this?<\/p>\n\n\n\n
The first thing to observe is that real rates of interest \u2014 you can think of this as the amount of interest markets are paying relative to what inflation is expected to be \u2014 are now meaningfully positive and have increased significantly over the course of this quarter. Second, inflation expectations \u2014 meaning what the fixed income market expects inflation to be in the future \u2014 have declined significantly. Both these facts indicate that the fixed income markets believe the Fed is prioritizing inflation reduction. However, the risk that inflation stays higher for longer has not gone away; instead, the risk of a \u201chard landing\u201d \u2013 or sharp economic slowdown \u2013 has become more pressing.<\/p>\n\n\n\n
Given how sharply yields have risen this year \u2014 combined with the massive spike in energy prices, in Europe in particular \u2014 we should all expect increasingly gloomy economic data and predictions that it will continue to worsen from major news outlets. It is important to keep in mind that market performance is a leading indicator: you can expect economic data to worsen when global stock markets are down 20% or more (especially for many growth-oriented asset classes).<\/p>\n\n\n\n
Although the recent volatility can be unnerving, remember that no one can precisely predict changes in the economy and, more specifically, how they might affect markets. Here are some points investors can keep in mind in the meantime:<\/p>\n\n\n\n
For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. U.S. Market above is measured by Vanguard Total Stock Market Index Fund (VTSMX), High Quality Fixed Income is measured by DFA Diversified Fixed Income (DFXIX), DFA Inflation-Protected Securities (DIPSX), DFA Municipal Bond (DFMPX), and DFA Intermediate Gov\u2019t Fixed Income (DFIGX). Past performance does not guarantee future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Mentions of specific securities should not be construed as a recommendation. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this document. R-22-4451<\/em><\/p>\n\n\n\n Although the recent volatility can be unnerving, it\u2019s important to remember that it is impossible to accurately predict changes in the economy and how they might affect markets. September turned out to be a tough month for markets after performance started to look a little brighter late this summer. Earlier in the year, the key […]<\/p>\n","protected":false},"author":37,"featured_media":2766,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"post_statement":"","post_description":"","post_cta":"","post_button":"Read More","post_button_url":"","footnotes":"","compliance_id":"","post_disclaimer":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/posts\/2765"}],"collection":[{"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/users\/37"}],"replies":[{"embeddable":true,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/comments?post=2765"}],"version-history":[{"count":2,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/posts\/2765\/revisions"}],"predecessor-version":[{"id":2769,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/posts\/2765\/revisions\/2769"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/media\/2766"}],"wp:attachment":[{"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/media?parent=2765"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/categories?post=2765"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/harrisonlazarus.com\/wp-json\/wp\/v2\/tags?post=2765"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Source: <\/strong>https:\/\/buckinghamstrategicwealth.com\/resources\/investing\/what-caused-market-volatility-to-rise<\/a> <\/h3>\n","protected":false},"excerpt":{"rendered":"