Markets tend to get nervous when faced with uncertainty—and that’s exactly what we’ve been seeing. Several key factors have been contributing to recent volatility:
1. Uncertainty Around Trade Policies
Trade tensions, particularly during the Trump administration, created significant uncertainty. Tariffs and trade wars made it difficult for businesses to plan for the future, causing market fluctuations. The market’s tendency to “sell off” in times of uncertainty is a natural reaction as investors seek to reduce risk. For more on how trade policies influence markets, see this analysis by Goldman Sachs.
2. Geopolitical Tensions
Over the past few years, geopolitical risks have significantly reshaped the global landscape. Conflicts such as the Russia-Ukraine war and the Israel-Hamas conflict have disrupted energy and food security, driving up prices and fueling inflation.
Additionally, the rise of nationalism and protectionism has led to more scrutiny of globalization’s benefits, exposing vulnerabilities in global supply chains. The strained relationship between the U.S. and China, particularly around trade and access to critical minerals, also adds to market uncertainty.
3. Global Economic Slowdown
Concerns about slowing economic growth, particularly in China, have also played a role. According to the International Monetary Fund (IMF), global growth had been slowing due to factors such as rising debt levels and declining productivity. When the world’s second-largest economy shows signs of slowing, it sends ripples through global markets. The World Bank also highlighted these risks in their global economic prospects report.
4. Overvalued Markets
Another reason for recent market pullbacks is that valuations may have gotten ahead of themselves. The S&P 500, for example, has been heavily weighted in just a handful of large tech stocks—over 35% of the index is concentrated in its top 10 names. When a few companies hold so much influence, it can make the market more susceptible to sharp swings.
Markets Aren’t Always Rational—And That’s Okay
It’s important to remember that the market doesn’t always act logically. Short-term sell-offs are often driven by emotion rather than fundamentals. Even so, these fluctuations can create stress and uncertainty for investors.
According to a report by J.P. Morgan Asset Management, market corrections of 10% or more happen, on average, once every two years. This historical context can help you understand that what we’re seeing isn’t out of the ordinary.
But here’s the good news: Market volatility is normal. It’s part of the investment journey. What’s most important is how we respond to it.
What Should You Do Now?
1. Review Your Asset Allocation
This is an excellent time to look at your current investment mix. Is your portfolio appropriately balanced based on your risk tolerance and financial goals? Ensuring that your asset allocation aligns with your long-term objectives can help you stay calm during turbulent times. Vanguard’s research shows that proper asset allocation can account for over 90% of a portfolio’s performance.
2. Focus on Fundamentals, Not Headlines
It’s easy to get caught up in alarming headlines, but fundamentals like economic growth and corporate earnings are what truly matter in the long run. Historically, markets have rewarded patience and discipline. Trying to time the market rarely works. According to a study by Schwab, missing just a few of the best days in the market can significantly reduce long-term returns.
3. Rebalance and Stay Disciplined
Given recent market performance, it might be time to rebalance your portfolio. This could involve taking some profits in areas that have outperformed and reallocating them to undervalued sectors. Rebalancing helps manage risk and keep your portfolio aligned with your long-term goals.
4. Let’s Talk About Your Concerns
If you’re feeling uneasy about what’s happening in the markets, you don’t have to navigate it alone. This is a great time to schedule a review of your portfolio. I’d love to sit down with you—whether in person, over the phone, or via video chat—to discuss your situation and make sure you’re on track.
Click here to schedule an appointment at a time that works for you. Together, we can review your investment strategy and make any adjustments needed to help you stay confident about your financial future.
