It’s Spring Break around Encinitas right now, we hope you were able to get some time away with your family this month.
Investors could probably use a break too. The S&P 500 continued to slide in March – entering a technical correction (defined as a 10% drop from the highs in February).
Market Update
Markets have been on edge since the middle of February. On-again, off-again tariffs, coupled with layoffs in the federal workforce, have shaken confidence. Whatever initial enthusiasm there was around the new administration has been replaced with concerns about the economy – and the growing possibility of a recession. We’re now looking ahead to April 2nd, when the proposed tariffs are set to take effect across a range of industries.
Thankfully, unlike the last correction in 2022, diversification has been working. Bonds, foreign stocks, and gold have all had solid starts to the year.
The Word of the Month: Uncertainty
Raise your hand if you’ve heard the word “uncertainty” being used to describe the stock market, economy, or even on a company work call this month. You’re not imagining things – an index out of the University of Chicago measures the frequency of articles that contain references to the economy, policy, and uncertainty. According to their measurement, the index is now at an all-time high.
Uncertainty isn’t in short supply these days – and investors have taken notice.
See-sawing policy from the White House has given investors whiplash on many fronts – with tariffs being among the biggest question marks, market experts say.
Coupled with uncertainty around federal job cuts, negotiations to end the war in Ukraine and other issues, the combination has been “disorienting to market sentiment,” Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute, wrote Wednesday.
Stocks have wobbled amid the vertigo.
The S&P 500 entered a correction last week, meaning the US stock index fell 10% from its recent high mark in February. The index has recovered a bit but teetered on edge of a correction Tuesday afternoon.
Why Uncertainty Makes the Stock Market Go Haywire
It’s understandable why investors are worried. Some families might have lost income due to a job loss or are pulling back spending in case of a potential layoff in the future. At the same time, corporate leaders are trying to navigate tariffs that seem to change hourly. When both consumers and companies pull back on spending, it hits corporate profits – and stock prices really haven’t reflected that risk yet. While it feels like the market might be on the precipice of something worse, where does the recent selloff fit in historically?
Risk is always present
Market volatility is uncomfortable – but it’s not unusual. The average intra-year drop in the S&P 500 is over 14%, and yet markets end the year positive far more often than not.
Also, losses never occur in a vacuum. These downturns are always accompanied by bad news and the scary headlines to match. The charts below show what was going on during the downturns, and some selected gems from a particularly dicey period in 2011.
Notice the fear-inducing language…
“worst quarter since the 2008 financial crisis, and the swoon is hardly over”
“eerily reminiscent of the months leading up to the Lehman bankruptcy in 2008”
Why Uncertainty Can Be Good for Investors
Here’s the upside: uncertainty creates opportunity.
When fear drives prices lower, long-term investors get the chance to buy quality assets at a discount. Volatility and pullbacks are the market’s way of resetting – and they often reward those with patience and discipline.
Uncertainty also opens the door to smart rebalancing – trimming positions that have held up well and buying what’s been beaten down – one of the only “free lunches” we get as investors.
We know that times like these can feel unnerving. But this is exactly why we invest – to outpace inflation, grow our purchasing power, and build a financial foundation for our future selves and the people we care about. Volatility will come and go. But investors who stay disciplined and avoid reacting out of fear will be far better off in the long run. We’ll tackle what may come from tariffs next month – in the meantime, stay disciplined.
And finally, we could probably use a good laugh right about now. We’ll try this the next time we’re in New York City.
