Multiple Award Contract Solutions Resource Center

It's been a rocky start to 2022 with the NASDAQ, S&P 500, and Dow down 15%, 10%, and 8%, respectively. The most aggressive sectors of the market have been hit the hardest, with approximately 40% of the companies in the NASDAQ down 50% or more from their peak.

Bond prices have declined in general but bounced back in early March with risk-off sentiment building around the Russia-Ukraine conflict.

Geopolitical Events and Inflation

Fortunately, the economy is still expanding and the economic data look strong. However, input costs such as labor and energy have been rising.

The country is close to full employment, and with the current geopolitical events in Eastern Europe, crude oil has risen to over $100 per barrel. Many other commodities have similarly been disrupted due to sanctions against Russia.

Inflation has become a concern and the Federal Reserve is prepared to make its first interest rate hike at the March 15–16 meeting, likely a 25-basis point move.

The recent market volatility isn’t much of a surprise given the headwinds of a tightening cycle by the Fed concurrent with significant geopolitical disruption.

Volatility Is Expected

The market is a forward-looking discounting mechanism so much of this news is already priced in. Volatility in the markets can be unnerving, but history shows that investors who stay the course with a diversified portfolio and long-term plan have better chances of meeting their goals.

Investors who try to time the market around specific events like Fed tightening, geopolitical unrest, or even a global pandemic, could underperform.

Manage Risk by Diversifying

A strong strategy to achieve long-term success is to remain in the market with an asset allocation that’s appropriate for your specific risk tolerance, objectives, and time horizon.

A long-term plan with a diversified portfolio consisting of equities in both the US and abroad, with a mix of size and style, which includes lower volatility strategies like bonds, hedged equity, and defensive sectors like utilities, can cushion the inevitable bear markets in the long-term.