Read the financial news today and it’s highly likely you’ll see the term “volatility” in at least several articles. While market volatility is a normal part of the investing experience, ever since the pandemic hit the world in 2020, volatility seems to have become the new norm for investors.
“Market volatility” is the fluctuation of the market, both up and down, and the rate of that change to the equity market’s overall value. The bigger and more frequent the value swings, the more volatile the market. For example, when the stock market rises and falls more than one percent over a sustained period, it is often called a “volatile” market.
Equity markets are highly sensitive right now. Their gyrations are tied to many key factors, including inflation rates, interest rates, key economic indicators, changes in monetary policy, and global conflict. Most particularly, the uncertainty brought about by the elevated level of inflation and rapidly rising federal funds rates are fueling market volatility and investor fears.
The Federal Reserve’s fight to reduce today’s inflation rates has left stocks in a state of consistent volatility. Even though the U.S. inflation rate is beginning to slow down, it still remains well above the Federal Reserve’s 2% target. The Federal Reserve remains committed in its battle to get closer to the target range.
In January, the U.S. unemployment rate reported a five-decade low unemployment rate of 3.4%. While the economy is still showing some signs of resiliency, the expectation is that the Federal Reserve is highly likely to increase interest rates several more times this year.
The economic environment seems as if it is balancing on a seesaw and investors are unsure of what direction it will tip. Equity markets are responding by remaining very wary and have many investors on the edge of their seats, waiting for the next move.
Seasoned investors understand that market downturns are uncomfortable, but not uncommon. It’s important to keep in mind that during volatile times like these, staying the course of your well-devised plan and remaining invested could prove to be a wise decision.