Looking into the Crystal Ball

We’ve had a wild ride in the markets this year. The S&P 500 has been down 20%, up 17%, and, lately, doing a little bit of whatever it wants on a day-by-day basis. As I write this, markets are deciding which way to swing as stubbornly high inflation numbers indicate the Federal Reserve will have to maintain a more aggressive course of interest rate increases to cool the economy. 

The most common question I get from clients during these periods of market instability is one we would all like answered: what are the markets going to do next and when will “normal” come back? 

As someone who thrives on growing my knowledge and being helpful, I closely follow market data and economic trends and am prepared with an answer that encapsulates the opinions of market analysts, the Federal Reserve, and a variety of financial commentators. 

While I love these conversations and hope clients and friends never stop asking these questions to educate themselves, detailed answers are often guilty of obfuscating the facts that (1) no one knows when markets will calm down and (2) what we are seeing in 2022 is not abnormal market behavior. 

You can ask five different analysts or market commentators the same question about the market’s path, and get five different answers. None of these people would be uninformed or bombastic, but they are subject to a fundamental flaw in the human condition: trying to predict the future with the information available in the present. The best strategy, then, is to read and distill predictions from people that closely follow economic trends and consider most of these predictions as distinct possibilities. 

This doesn’t answer the question “What will happen next?” But it does reinforce one of the central tenets of long-term financial success: staying the course in difficult markets is the single easiest way to grow your portfolio and continue building wealth over decades. Success in timing the market only makes you lucky, and luck is not a key part of success in portfolio management. 

The final piece to learn to stay the course in difficult markets is remembering that financial volatility is, in fact, normal. Although the stock market run from April 2020 through December 2021 was enjoyable, it was more of an aberration than the volatility we have experienced so far in 2022. Very few investors were worried, however, because they were watching their portfolios significantly increase in value. 

So, please continue asking what the markets will do next, because I love reading and pontificating with others that are interested in financial markets. You’ll still see articles on this blog exploring what might come in the future. Take them with a grain of salt and remember that while markets always move up and down, these swings are easier to weather with the help of a solid financial plan and an advisor you trust in your corner.